U.S. carrier Delta Air Lines Inc said it expects solid earnings growth in 2011, but its shares eased 1.4 percent as it pared its operating margin forecast for the current quarter, citing TransAtlantic softness.

Delta said it expects operating margin of 6 percent to 7 percent for the fourth quarter, compared with its prior view of 6 percent to 8 percent.

In the TransAtlantic, our yields are a little soft, given the large amount of industry capacity that's in the TransAtlantic at the present time, President Ed Bastian said during the company' investor conference webcast.

Bastian added that the ticket-price softness was offset by stronger growth in Delta's domestic business. He said the fourth quarter would be solidly profitable.

Delta, the world's second-biggest airline behind United Continental Holdings Inc , said its plans for 2011 include retiring its least fuel-efficient planes and continuing to pare debt.

The Atlanta-based carrier said ancillary initiatives such as baggage fees, cargo and commercial aviation services are expected to generate 5 percent to 10 percent revenue growth next year. The airline plans to reduce its domestic fleet by 9 percent by December 2011 from December 2009 levels.

For 2011, analysts expect Delta to earn $2.20 a share, up from an expected $1.77 this year.


Delta and other airlines returned to profitability this year, recovering from the recession that sapped corporate and consumer demand for air travel. Still, rising fuel prices could increase costs and eat into profits.

Bastian said fuel prices could be somewhat of a headwind in 2011 but added the company felt it could manage them.

Since acquiring Northwest Airlines in 2008, Atlanta-based Delta has focused on adding passenger amenities such as fully reclining seats and expanding service to higher-growth markets such as New York.

Still, the carrier faces challenges, including new competition. It now has to vie with United Continental for coveted business and international passengers. And discount carrier Southwest Airlines has proposed to acquire rival AirTran Holdings , a deal that would allow the combined airline to compete head-to-head with Delta in its home base of Atlanta.

Delta on Wednesday declined to comment on a published report that it has approached British carrier Virgin Atlantic Airways about a potential tie-up. Delta has said in the past that it plans to expand its SkyTeam alliance, which includes Air France-KLM and many other airlines.

Shares of Delta were down 1.4 percent to $12.89 in morning trading. The stock has risen 14 percent this year, compared with a 40 percent rise in the Arca Airline index <.XAL>.

(Reporting by Karen Jacobs; editing by Gerald E. McCormick and John Wallace)