ATLANTA — Delta Air Lines, bucking an industry slump in cargo shipments, is packing more auto parts, mail and salmon into the bellies of its passenger jets to beat its largest U.S. competitors.
Delta is on a five-month streak of gains in cargo traffic, bolstering the bottom line ahead of tomorrow’s quarterly earnings report. The cargo operations produce $1 billion in annual sales and profit margins that have topped 50 percent because goods are flown on jets with fare-paying passengers.
The nation’s second-biggest carrier — and the largest at Charleston International Aiport — is jumping ahead of peers with a larger route network created with the 2008 purchase of Northwest Airlines, new markets, and improved on-time performance that executives say helps sales. With the merger already complete, Delta has more flexibility to focus on cargo than larger United Continental Holdings, which is undergoing its own merger integration, or American Airlines parent AMR, which is in bankruptcy court.
“People underestimate the benefit of Delta having integration behind them,” said Savanthi Syth, a Raymond James & Associates Inc. analyst. “United is still trying to combine networks and cargo space tends to be one of the last things that gets optimized. And American has been so focused on their bankruptcy.”
Delta surpassed United in cargo tonnage in July as the world’s biggest airline integrates former United parent UAL Corp. and Continental Airlines. The Atlanta-based carrier’s cargo rose 1.1 percent through September while Chicago-based United’s fell 6.4 percent and American’s slid 1.2 percent.
“We have definitely outpaced our peers,” said Tony Charaf, senior vice president and chief cargo officer.
While Delta doesn’t typically give profit-margin details for the unit, Charaf’s predecessor, Neel Shah, said in 2010 that the figure was “well north” of 50 percent. The airline’s overall operating margin last year was 6.3 percent.
That means Delta’s $1.03 billion in cargo revenue last year, which made up only 2.9 percent of total sales, generated a significantly larger portion of profit. Analysts project third- quarter net income will climb 44 percent while United’s may drop 12 percent. AMR reported last week that its quarterly loss widened on the same basis.
“Delta is smart to be so aggressive on it, because almost all of that revenue falls right to the bottom line,” said Helane Becker, an analyst at Dahlman Rose & Co. in New York.
Airlines typically handle pallets of cargo in large volumes, setting them apart from United Parcel Service and FedEx, which handle primarily smaller individual packages.
Sustaining Delta’s gains will require the airline to keep resisting the industry’s slowdown. Global cargo traffic is projected to shrink 0.4 percent this year while yields will drop 2 percent, the International Air Transport Association trade group said on Oct. 1.
Some of Delta’s advances may flow from rate cuts to snatch sales from rivals, Becker said. A 2 percent drop in first-half cargo revenue while volumes rose is a possible sign of price reductions, she said. United’s cargo revenue plunged 12 percent in the same period and American’s fell 3.6 percent.
“Delta is probably being aggressive on price to get new business, which they can afford to be,” said Becker, who has a hold rating on the stock.
Charaf said Delta was benefiting from more-aggressive cargo sales and declined to discuss rates, citing competitive reasons. The airline will outline its cargo business’s performance in the third quarter in tomorrow’s earnings report.
Auto parts from Europe; electronics from Taiwan, China and Japan; flowers from Colombia; blueberries from Argentina; and salmon from Chile are helping expand the cargo business, Charaf said in an interview.
Delta is also hauling 50 percent more mail for the U.S. Postal Service than a year earlier after American exited that segment, and striking accords with carriers such as Emirates to reach countries it doesn’t serve with its own jets, Charaf said. Delta is working on five new interline deals with partners Charaf declined to name.
On-time flights help. Delta ranked first or second among major carriers for each month in 2012 and had the fewest cancellations, according to the Transportation Department and FlightStats.com, an industry researcher. Since February, United’s on-time arrival rate has ranked among the bottom three of 15 U.S. carriers.
“Does that make a difference? Absolutely, because when we commit, we deliver,” Charaf said. “You cancel a lot less flights. That matters a lot, that really is a tremendous advantage for us, no question.”
United pared cargo capacity when it got rid of some older Boeing 747 jumbo jets and wide-body 767s, and it pulled some 767s off domestic routes and replaced them with 757s, said Mary Ryan, a spokeswoman for the airline. At the same time, United put one of the 767s in service between Houston and Lima to take advantage of cargo demand in those cities, she said.
American is focusing on Latin American cargo routes and more-profitable international mail amid weakness in trans- Atlantic markets and flight cuts that shrank cargo capacity, said Sean Collins, a spokesman for the Fort Worth, Texas-based carrier.
One of Delta’s advantages over American and United may be timing: While American works through bankruptcy - and tries to fend off advances from US Airways - that episode in Delta’s history is now over. Delta filed for court protection in 2005, beat back a US Airways takeover in January 2007 and exited Chapter 11 about three months later.
Also in the past for Delta are the challenges that accompany the combination of two separate airlines, a process still under way at United after the 2010 tie-up with Continental.
After buying Northwest in 2008, Delta CEO Richard Anderson unloaded that carrier’s Boeing 747 freighters and focused on the business of loading freight cargo in jetliners’ bellies.
“Now they’re reaping the benefits,” Raymond James’s Syth said.