Jul. 23--Delta Air Lines on Wednesday reported a $257 million loss for the second quarter -- mostly due to merger costs and fuel-hedging losses.

The loss -- 31 cents per share -- included $57 million in merger-related expenses and $390 million in realized fuel hedge losses.

Without those items, the world's largest airline would have turned a $191 million profit.

CEO Richard Anderson said that was a testament to successful efforts to tailor capacity to demand and slice overhead by reducing payroll and other costs.

The company said it realized $200 million in synergy benefits so far this year from its merger last October with Northwest Airlines. Officials said they still expect to hit a target of $500 million in merger benefits for the year.

The merger boost was a silver lining amid mostly gloomy news.

Chief Financial Officer Hank Halter said revenues were down about $3 billion so far this year because of weak demand.

The company estimated swine flu, or H1N1 virus, took a $125 million to $150 million bite out of business in the quarter. The impact is expected to rise to $250 million by the end of the year.

Officials had no expectation for improvement through the end of the year.

"This year has been and will remain challenging for the industry as we do not see any meaningful recovery for 2009," said Anderson, later adding, "we are assuming no recovery because that's the conservative approach to take."

Delta is responding with previously announced moves like further cuts in capacity and new surcharges on baggage checked at terminals.

President Ed Bastian said the airline will reduce capacity 10 percent in September. About 30 to 40 mainline aircraft will be grounded, giving Delta the flexibility of putting them back in service if and when demand increases.

Bastian said cuts would include about 20 percent of trans-Atlantic capacity and 12 percent of Pacific capacity.

In a memo to Delta employees, Halter said, "We will capitalize on the flexibility that the merger provides. But we also need to take a hard look at our entire business -- our network, fleet and cost structure -- to determine other changes that must be made. While we can make no guarantees in the current environment, our goal continues to be to avoid involuntary furloughs of front-line employees."

The airline reported costs, excluding fuel and special items, were up 2 percent during the quarter on a 7 percent reduction in system capacity. Officials said the higher cost was due to pension expenses.

About 11 percent of the Delta-Northwest workforce has left under voluntary programs since the fiscal year began, officials said.

-- Wayne Risher: 529-2874

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DELTA QUARTERLY RESULTS

Net loss: $257 million or 31 cents per share

Operating revenue: $7 billion, down 23 percent

Cash from operations: $834 million

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