Delta posts smaller loss, sees profitable Q2

The world's biggest air carrier said it expects improved revenue trends even as the industry faces fresh travel disruptions in Europe from ash spewed from an Iceland volcano.

The company's first-quarter loss narrowed to $256 million, or 31 cents a share, from $794 million, or 96 cents a share, a year earlier.

Excluding items including a $10 million charge tied to the Venezuela currency devaluation, the loss came to 23 cents a share, in line with analysts' expectations on average, according to Thomson Reuters I/B/E/S.

Operating revenue rose 2 percent to $6.85 billion despite a $65 million hit from flight cancellations tied to snowstorms earlier this year. Operating expenses fell 5 percent, helped by an 11 percent drop in fuel costs and merger savings.

Analysts expected revenue of $7 billion.

Airlines have cut jobs and reduced capacity in the past two years as the economic downturn battered demand for air travel. In recent months, U.S. carriers have noted that business demand is picking up.

At Delta, passenger revenue rose 4 percent in the first quarter while unit revenue climbed 8 percent from the year earlier, helped by fuller planes.

"We are encouraged by the improvements we continue to see in the revenue environment," Delta Chief Executive Richard Anderson said in a statement. "We expect the positive revenue trends to continue and to be solidly profitable in the June quarter."

Delta became the world's biggest air carrier when it bought Northwest in 2008. It could lose its top ranking should two of its U.S. rivals merge.

Currently, UAL Corp's United Airlines is reported to be in separate merger talks with both Continental Airlines and US Airways . A combined United-Continental would surpass Delta. None of the carriers have confirmed the talks.

(Reporting by Karen Jacobs, editing by Dave Zimmerman)