Delta Air Lines Inc , the world's biggest carrier, said on Wednesday it no longer expects to make money this year, while smaller crosstown Atlanta rival Airtran Holdings posted a higher-than-expected profit in the second quarter.

AirTran shares rose 12.2 percent, while Delta shares edged 1.8 percent higher in early trading on the New York Stock Exchange.

Delta continues to work through costs associated with its merger with Northwest Airlines in October that made it the world's largest airline, and told employees that it may need to cut more jobs to stay competitive amid the recession-fueled falloff in business.

We are not planning for any meaningful recovery in the coming months and no longer expect to be profitable this year, Chief Financial Officer Hank Halter said in a memo to staff that was including in a regulatory filing.

Delta reported a quarterly loss of $257 million, or 31 cents per share. It said the recession drove down revenues by more than $3 billion in the first half of the year.

Delta said it would continue to right size capacity and keep unit costs in check, but it reiterated that it may need to cut more jobs.

While we can make no guarantees in the current environment, our goal continues to be to avoid involuntary furloughs of front-line employees, Halter said in the memo.


The airline industry is straining to cut capacity to adjust to lower demand.

If business traffic comes back, the capacity reductions will stop, Helane Becker, an analyst with Jesup & Lamont. If it doesn't come back, the industry has no choice but to keep cutting capacity until it reaches an equilibrium level where supply matches demand.

While Delta followed other major carriers by posting new losses with fuel costs higher and demand softer, AirTran followed the lead of fellow low-cost rival Southwest Airlines Co earlier this week by posting a profit.

AirTran reported net income of $78.4 million, or 56 cents a share, for the second quarter, compared with a loss of $14.8 million, or 14 cents a share, a year earlier.

Excluding items, profit came to 34 cents a share, better than the 32 cents a share expected by analysts, according to Reuters Estimates.

Operating revenue was down but so were expenses. Capacity, measured in available seat miles, declined 7.6 percent.

Over the past year, AirTran has moved to reduce debt and revamped fuel hedge contracts to reduce the potential for losses tied to oil prices.

The combination of reduced capacity, lower fuel prices and the lowest cost structure of any major airline allows us to compete effectively, AirTran Chief Financial Officer Arne Haak said in a statement.

(Reporting by Karen Jacobs, Deepa Seetharaman and John Crawley; Editing by Brian Moss)