Delta Air Lines Inc. abandoned plans to add at least $4 billion of Boeing Co. and Embraer SA jets tied to a proposed contract agreement that was rejected by union pilots.

The accord for 40 new Boeing Co. 737-900ERs and 20 Embraer SA E190s is now off, Delta said Wednesday after reporting second-quarter earnings that beat analysts’ estimates. Members of the Air Line Pilots Association at Delta, the least-unionized major U.S. carrier, spurned the labor deal last week.

“Those orders will be canceled,” Chief Executive Officer Richard Anderson said on a conference call without elaborating.

Delta’s announcement punctuated a day in which it posted adjusted earnings of $1 billion, slowed growth in seating capacity for the rest of 2015 and saw its stock slump after forecasting that revenue for each seat flown a mile would fall more than some analysts had estimated.

Executives had refrained from commenting on its fleet strategy after pilots’ July 10 vote. Analysts had hailed the proposed contract as a sign of labor peace, six months ahead of the January start date for new terms. Delta included the plane purchase as a sweetener. The E190s would have been a new, smaller class of planes for Delta’s main jet operations.

The capacity pullback unveiled Wednesday responds to analysts’ urgings for slower growth as airlines struggle to charge more. At the same time, the U.S. Justice Department is investigating whether the major carriers are colluding on those adjustments, boosting airfares.

Available seating will rise by 3 percent this quarter and be unchanged in the year’s final three months, Delta said.

Flush with record profits in 2014, airlines had begun adding more seats, hoping to lure additional flyers. Budget carriers like Spirit Airlines Inc. and Southwest Airlines Co. are the most aggressive: Spirit plans to increase capacity by 30 percent this year, Southwest by 7 percent.

Fares Fall

As demand failed to keep pace, average domestic fares have fallen 8 percent from a June 2014 high, according to data compiled by Bloomberg, and airlines started to feel the heat, especially in highly contested markets such as Dallas and Chicago. This week, Spirit cut its forecast for operating margins for the rest of 2015, citing pricing pressure from other carriers.

Excluding some items, earnings of $1.27 per share exceeded the $1.21 average estimate among 16 analysts surveyed by Bloomberg. Sales were $10.7 billion, compared with a consensus analyst estimate of $10.6 billion.

Delta’s weak third-quarter forecast for revenue from each seat flown a mile — down 4.5 percent to 6.5 percent — may be weighing on the stock, said Michael Derchin, an analyst with CRT Capital Group. Some investors may have expected that measure to improve after last quarter’s 4.6 percent slide, he said.

Shares Fall

“That’s the only thing negative I see,” Derchin said. “Otherwise, there’s a lot of positives in the report.”

Airline stocks fell following Delta’s report. Delta slid 1.5 percent to $42.99 at 11:32 a.m. in New York as the Bloomberg U.S. Airlines Index declined 1.5 percent.

A 39 percent drop in jet kerosene prices buoyed earnings in the three months ending in June and will continue to do so in the current period, Anderson said in a statement. Delta saved $463 million on fuel compared with the same period last year.

Delta expects its cuts on capacity to help “stem the erosion” in unit revenues, President Ed Bastian said in the statement. Available seating at Atlanta-based Delta had risen by at least 3.2 percent in every period since April 2014 and by as much as 5 percent in the first three months of this year.

This article was written by Michael Sasso from Bloomberg and was legally licensed through the NewsCred publisher network.

Photo Credit: Delta Air Lines CEO Richard Anderson speaks during a press conference in Tokyo, Tuesday, July 30, 2013. Itsuo Inouye / Associated Press