On Tuesday morning, global airline giant Delta Air Lines (NYSE:DAL) reported yet another quarter of strong earnings growth. Adjusted pre-tax income jumped 42% year over year, thanks to the sharp drop in fuel prices since 2014.

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Delta's profit is flying higher. Photo: The Motley Fool

The revenue environment remains shaky for Delta and its peers American Airlines (NASDAQ:AAL) and United Continental (NYSE:UAL), due to the strong dollar and economic slowdowns in some parts of the world. However, Delta's massive fuel cost savings will continue to outweigh its modest unit revenue declines. This sets the company up for yet another year of record earnings in 2016.

Delta's earnings by the numbers
In Q4, Delta's revenue declined 1.5% year over year to $9.50 billion. This missed the average analyst estimate of $9.61 billion by about 1%.

Adjusted earnings per share reached $1.18. That was up more than 50% from a year earlier, even after Delta incurred a $60 million cost to settle some of its 2016 hedges early and a $75 million write-off for its remaining Venezuelan currency holdings. Analysts had been expecting EPS of $1.19.

Key Delta Air Lines Metrics: Q4 2015

Revenue

$9.50 billion

Adjusted net income

$1.45 billion

Adjusted EPS

$1.18

Passenger unit revenue

Down 1.6%

Adjusted non-fuel unit costs

Up 1.9%

Looking at revenue and costs
Delta's 1.6% decline in passenger unit revenue was a lot better than the 2.5%-4.5% decline that it had projected at the beginning of the quarter. This shows that Delta's strategy to boost unit revenue by cutting capacity in weak international markets is working.

The improvement was most dramatic in the Pacific region, where Delta slashed its capacity by 11.4% year over year. Unit revenue declined 2.9%, compared to a 9.3% drop in the previous quarter, when capacity was down only 3.7%.

Delta's unit revenue trend also improved on transatlantic routes, where it moved from 4.3% capacity growth in Q3 to a 1.3% capacity reduction in Q4. The Latin America region posted the worst unit revenue trend, which wasn't surprising, because it also had the smallest capacity cutbacks.

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Delta's fleet renewal efforts helped keep unit cost growth in check. Photo: Delta Air Lines

On the cost side, non-fuel unit costs rose 1.9% year over year before the impact of profit sharing. Wage increases were mostly offset by savings from Delta's efforts to replace its least efficient planes and add seats to many of the older planes remaining in its fleet.

On the other hand, Delta's adjusted fuel expense declined by more than $700 million year over year. The company paid $1.85 per gallon last quarter, including hedging losses and refinery gains, compared to $2.62 per gallon in Q4 2014.

Looking ahead
Delta expects to report a 2.5%-4.5% passenger unit revenue decline for Q1. The sequential decline may be related to the growing signs of economic weakness around the world. The sharp drop in oil prices in the past three months will also drive fuel surcharges down again.

On the other hand, Delta's initial guidance for Q4 also called for a 2.5%-4.5% passenger unit revenue decline, and the company ultimately outperformed that forecast.

Delta will get a massive fuel windfall to offset its unit revenue declines and wage increases. Delta paid $2.93 per gallon for fuel a year ago due to steep hedging losses; by contrast, it expects to pay just $1.20-$1.25 per gallon this quarter. As a result, EPS could as much as triple in Q1.

American Airlines and United Continental will also see ample fuel cost savings, but not on the same scale as Delta. Meanwhile, both companies have been posting inferior unit revenue results compared to Delta in recent quarters. Unless American and United can avoid the incremental revenue pressure that Delta is facing -- which seems unlikely -- they will post comparatively modest EPS growth in Q1.

On the other hand, unit revenue comparisons will get a lot easier for all three legacy carriers by Q2. This could drive a sharp improvement in the unit revenue trend for Delta Air Lines, American Airlines, and United Continental -- which might be the signal for the next big rally in airline stocks.

Adam Levine-Weinberg owns shares of United Continental Holdings, and is long January 2017 $40 calls on Delta Air Lines, and long January 2017 $30 calls on American Airlines Group. The Motley Fool is long January 2017 $35 calls on American Airlines Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.