Delta Air Lines Inc. (DAL), which is transforming its business to reduce costs and attract more fliers, blamed high fuel prices, low fares and hefty charges as it reported a $2.2 billion fourth quarter loss, capping the worst annual financial performance in the industry's history.

The results, announced before the market opened Thursday, missed Wall Street's reduced expectations and pushed the total losses at the Atlanta-based carrier in 2004 to $5.2 billion. That dwarfs the $3.5 billion loss American Airlines' (search) parent reported for 2002.

Shares of Delta fell 26 cents, or 4.4 percent, to $5.69 on the New York Stock Exchange.

Delta CEO Gerald Grinstein told analysts on a Web conference that "if Delta is to survive, we must develop a fundamentally different way of doing business, which is what we're doing."

In a press release, Grinstein said "these numbers show clearly the difficulties our airline will continue to face in 2005." Delta has lost $8.5 billion since 2001.

For the three months ending Dec. 31, Delta said its net loss was $2.21 billion, or $16.58 a share, compared to a loss of $332 million, or $2.69 a share, in the same period a year ago. The latest loss includes $5 million in dividends paid out to preferred shareholders.

Excluding one-time items — $1.4 billion in non-cash charges — Delta said it lost $780 million, or $5.88 a share. On that basis, analysts surveyed by Thomson First Call were expecting a net loss of $5.51 a share. Analysts had reduced their estimates twice in recent days.

Delta, the nation's third largest carrier, ended the quarter with $1.8 billion in unrestricted cash.

Revenue in the October-December period was $3.64 billion, an increase of 0.9 percent from $3.61 billion a year ago.

The bulk of the charges Delta reported in the quarter relate to reductions in the fair value estimates of two of its feeder carriers — Atlantic Southeast Airlines Inc. (search) and Comair Inc (search). Delta said this resulted from increased fuel prices, low fares and costs associated with its turnaround plan.

On Christmas, Comair had to cancel all 1,100 of its flights because of a computer glitch and chief financial officer Michael Palumbo estimated Thursday that the incident cost the airline $20 million in lost revenue and added operating expenses.

In the quarter, Delta said its passenger unit revenue decreased 5.6 percent compared with a year ago as fares were 7.7 percent lower. Fuel expenses increased $385 million in the quarter.

Delta nearly fell into bankruptcy 2 1/2 months ago before winning deep concessions from pilots and fresh financing from creditors.

Analysts say it will take several more months to determine if Delta's transformation plan is working. If it does, Delta could turn a quarterly profit by the fall, some analysts say. Wild cards that remain: fuel prices, the economy and the company's recent fare overhaul.

The 32.5 percent pay cut pilots at the nation's third-largest airline accepted in November did not take effect until Dec. 1, so not much of those benefits were realized in the fourth-quarter 2004 results. And the financing agreements the airline secured around the same time called for some of the money to be provided in installments.

The most recent element of Delta's transformation plan — cutting its most expensive fares by up to half on routes nationwide — has met mixed reviews from analysts and industry observers since it was announced Jan. 5.

Another element of its transformation plan has been more job cuts and the shedding of its Dallas hub. In September, Delta said it would cut up to 7,000 jobs over 18 months. Delta said Thursday that 3,400 employees have opted to participate in voluntary work force reduction programs.

For all of 2004, Delta said it lost $5.22 billion, or $41.07 a share, compared to a loss of $790 million, or $6.40 a share, for the prior year. Twelve-month revenue was $15.0 billion, compared to $14.10 billion a year ago. The full-year loss includes $19 million in dividends paid out to preferred shareholders.