Delta Air Lines Inc. ( DAL - Analyst Report ) , one of the leading airlines in the U.S., foresees a surge in its profits through 2013. It expects a robust growth in 2013 profit from the estimated $1.6 billion returns for 2012.

The company has also projected fourth quarter profits in the range of $200–$250 million. The anticipated growth in profits has led the company to revise its capital deployments. Management now plans to introduce strategies in 2013 regarding shareholders returns that would be effective from January 2014.

We believe Delta Air Lines remains benefited from its investments made to improve operating efficiencies and customer experience. The company is successfully realizing benefits from the Northwest merger. Further, Delta Air Lines expects solid growth on the back of improved travel demand and a cost cutting strategies.

Delta Air Lines is taking several initiatives to lower costs and is targeting $1 billion in cost savings over the next few years. The company is planning to cut consolidated capacity by 1–3% year over year in the fourth quarter, with 1–3% reduction in domestic flying and a 2–4% drop in international flying. Capacity at trans-Atlantic is also expected to decline 5% by the end of the year. Additionally, Delta Air Lines is involved in fuel hedging strategies, which provide a cushion to the fluctuating fuel prices.

Further, Delta Air Lines is restructuring its domestic fleet. The company plans to replace the older 50-seat regional inefficient aircraft with the new 110-seat Boeing 717-200. The company will introduce 16 Boeing 717 in 2013, 36 in 2014 and the remaining 36 in 2015.

This will enhance the company’s operational efficiency and improve its profitability by eliminating $100 million from cost upon completion. In addition, Delta Air Lines is expected to save $200–$250 million from maintenance efficiencies and $250–300 million from employee productivity (which includes voluntary early retirement of senior staff).

Apart from working on cost savings, the company is also taking initiatives to expand its service offerings. It is progressing well on improving ancillary revenues by adding new features to its services as well as introducing new products providing an edge over peers like United Continental Holdings, Inc. ( UAL - Analyst Report ) . Delta Air Lines is investing more than $2 billion through 2013 in improved products, services and airport facilities in the air and on the ground.

Besides, Delta Air Lines is making solid progress on reducing its debt, which will improve its balance sheet. The company expects to lower its net debt position from $11.9 billion to $10 billion by 2013. The company believes that lowering its debt position would result in interest expense savings of $500 million. We believe these efforts will position the company well relative to its peers.

Delta Air Lines retains a Zacks #3 Rank, implying a short-term (1–3 months) Hold rating. For the long term, we have a Neutral recommendation on the stock.