Delta Airlines deals a blow to Points International - guidance reduced.

Yesterday, Points International reported Q2, 2009 results. Sales came in at $21.3 million, a 23% increase over the previous quarter sales results reported at $17.3 million.

The Company reported an EBITDA loss of $0.4 million or (0.00) loss per share, versus positive EBITDA of $0.5 million or $0.01 EPS, in the previous year quarter. Sequentially, there was a slight EBITDA performance improvement from a $0.6 million loss reported for Q1, 2009.

The real news is that the Company disclosed that Delta Airlines (DAL) is "recasting" its relationship with PTS. During the conference call, this disclosure was better clarified. Delta is leveraging the Northwest merger to "insource" key point management services on Delta.com that PTS currently offers. Management admitted that this could represent up to 60% of current revenue, and that this would take effect as of October 1, 2009. As a result, the Company has reduced full year revenue guidance by $15 million to between $70 million and $80 million.

Not only did PTS lose Delta Airlines, but also through the merger, Northwest Airlines. This bad news offset the good news during the quarter, which was the signing of KLM-Air France.

Right now, Point International appears to be struggling. It is reducing its headcount by 20%, it is redeploying a new platform, redesigning its consumer websites (yet again), and it is grasping at social networking product development, among a myriad of activities announced during the conference call. Notwithstanding all of this activity, and even prior to the Delta bombshell, the company has been going backwards on profitability for the past 4 quarters, despite the promises made at the end of 2007 regarding improved margins and earnings leverage from the principle model. It never materialized.

Although losing most of the Delta revenue should improve gross margins, there is a lot of work to do to rescale the company and get to profitability. Analysts are likely to be concerned and may be losing patience, this sentiment should result in target reductions and changes in recommendations, which are likely to have a negative impact on the share price.

Disclosure: I do not own PTS or DAL shares.