Delta Air Lines is blaming escalating fuel costs for its $318 million net loss in the first quarter and says it is raising fares and retiring its "least efficient aircraft" over the next 18 months in an effort to compensate.

Boosted by higher fares, first quarter operating revenue rose 13% to $7.75 billion compared to a year ago. Operating expenses, however, were up 16% to $7.83 billion because of higher fuel costs, maintenance volume and employee wage increases. The company reported an operating loss of $92 million.

"Fuel is the biggest challenge facing this industry and Delta is actively reducing capacity, implementing fare actions, hedging our fuel needs and attacking our cost structure in order to offset fuel's impact on our earnings," says Delta CEO Richard Anderson.

The fuel bill increased by 29%, or $483 million, during the first quarter when Delta paid $2.89 per gallon for fuel with 41% of its fuel consumption hedged. That is expected to increase to $3.26 per gallon in the second quarter with 40% of fuel hedged.

The company attributed a $90 million shortfall in passenger revenue to "severe winter weather" and an additional $35 million loss due to the tsunami in Japan.

Delta plans to retire 130 aircraft over the next 18 months, which includes all McDonnell Douglas DC 9-50 and Saab turboprop aircraft along with 60 50-seat regional jets. The company expects that after Labor Day, system capacity will be down approximately 3% from a year ago. Trans-Atlantic capacity will be down 8% to 10% by the end of the fourth quarter.

"This was a particularly tough quarter for Delta, as we faced significant pressure on our business from rising fuel prices, the impact of events in Japan, industry overcapacity in the trans-Atlantic and mounting cost pressures," Delta CFO Hank Halter said in a memo issued to employees. "As a result we have a great deal of work ahead of us in 2011."

Source: Air Transport Intelligence news