Delta Air Lines is forecasting a key revenue metric will increase for the first time in two years, another indication that the revenue picture for the airline industry is improving.
The No. 2 U.S. carrier said Thursday it expected a flat to 2% increase in the first quarter of 2017 in its passenger unit revenue. For the December quarter, revenue declined 2.7% on a 0.9% increase in capacity.
Unit revenue compares sales to how many seats an airline flies and how far it flies them. The closely-watched metric has been in negative territory for Delta and the rest of the U.S. airline industry in general since mid-2015 amid fare cuts and a stronger dollar.
Delta, however, also warned Thursday that the improvement in unit revenue won’t begin to offset rising cost pressures until at least the second half of 2017.
“For the March quarter, Delta is expecting pressures on margins as the pace of change in unit revenue will not match the cost impact of higher fuel prices and employee wage increases,” the company said in a news release.
The airline forecast its operating margin would fall to 11% to 13% in the first quarter of 2017, down from 18.5% in the same period of 2016.
“We will remain conservative and keep our capacity growth in check until we see a further firming of these revenue trends in the near-term and longer-term, a return to our 17-19 percent operating margin target,” Delta President Glen Hauenstein said.
Forbes noted that Delta’s plan to reduce capacity slightly in the first quarter, and perhaps longer if necessary to establish and maintain a positive unit revenue trend, is “a big reversal from 2016, when Delta added an extra 3% of capacity in the first half of the year even as its unit revenue performance plummeted.”
Last month, American Airlines predicted its fourth-quarter unit revenue would range between a decline of 1% percent and an increase of 1%, becoming the first U.S. network carrier to push the metric into positive territory in two years.