Delta Air Lines projected record revenue for the third quarter on Thursday, driven by a surge in summer travel demand.
However, the forecast fell short of analysts’ expectations due to fare discounts following flight expansions.
In the current quarter, Delta anticipates sales growth of no more than 4%, below the 5.8% growth forecast by analysts polled by LSEG.
The airline also predicted adjusted earnings per share of $1.70 to $2, missing the $2.05 per share estimate.
Delta’s shares dropped over 5% in mid-afternoon trading, with other major U.S. airlines also seeing declines.
Thursday’s report marked the start of an airline earnings season characterized by full planes but squeezed profits due to rising costs and increased capacity affecting fares.
The Transportation Security Administration reported screening over 3 million people at U.S. airports for the first time on Sunday.
Delta stands out as the most profitable U.S. airline, indicating that competitors, particularly those in the oversupplied U.S. air travel market, may face challenges this summer.
United Airlines, set to report results next Wednesday, is striving to match Delta’s profitability. Both carriers are adding more premium seats, which generate higher revenue.
Analysts favor Delta and United over other U.S. airlines.
Delta’s second-quarter performance met Wall Street expectations based on LSEG consensus estimates:
- Adjusted earnings per share: $2.36 (in line with expectations)
- Adjusted revenue: $15.41 billion (slightly below the $15.45 billion expected)
For the quarter ending June 30, Delta’s adjusted business revenue rose 5.4% to $15.4 billion, slightly missing estimates. Net income fell nearly 30% from a year ago to $1.31 billion, or $2.01 per share, with operating expenses up 10%.
Adjusting for one-time items, Delta’s earnings were $1.53 billion, or $2.36 per share, matching analysts’ forecasts.
“The second quarter was a really strong performance,” CEO Ed Bastian said in an interview. “What you see happening is the impact in the domestic marketplace to the lower fare discounting that’s been going on this quarter.”
June airfare was 5.1% lower than a year earlier and 5.7% lower than the previous month, according to the latest consumer price data, showing easing inflation.
Bastian expects lower industry capacity in the U.S. later this summer to better align with demand. Delta reported that corporate travel continues to rise, with most customers planning to maintain or increase corporate travel spending.
Delta plans to grow its flying capacity by 5% to 6% in the third quarter compared to last year, slower than the 8% increase in the second quarter.
Bastian told CNBC he expects Delta’s unit revenues to turn positive year-over-year in September.
International travel revenue remains strong post-pandemic, though increased schedules mean more competition.
Trans-Atlantic unit revenue will dip by 1 percentage point due to the Paris Summer Olympics, impacting revenue by about $100 million from June through August, Bastian told CNBC.
Delta has more capacity to Paris than rivals, thanks to its Air France partnership.
Premium ticket sales, including first class, rose 10% in the second quarter to $5.6 billion, while revenue from coach tickets increased 0.3% to $6.7 billion.
Delta’s lucrative American Express credit card deal generated $1.9 billion, up 9% from last year.
Bastian noted that Delta is “fairly well insulated” from industry overcapacity, as it derives significant revenue from premium seats and other sources beyond standard coach tickets.
Delta reiterated its full-year earnings forecast of $6 to $7 per share and expects to generate up to $4 billion in free cash flow.
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