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Delta Air Lines on Thursday forecast record third-quarter revenue thanks to booming summer travel demand, but its forecast fell short of analysts’ estimates as carriers cut fares after expanding flights.
Delta shares fell about 8% in premarket trading. Other US airlines were also trading lower.
The Atlanta-based carrier on Thursday kicked off an airline earnings season marked by full planes, but earnings are under pressure as costs rise and increased capacity weighs on fares.
The carrier expects to increase its flight capacity 5% to 6% in the third quarter compared to last year, a slower increase than the 8% it expanded in the second quarter.
Here’s how the company performed in the three months ended June 30, compared to Wall Street expectations based on consensus estimates from LSEG:
- Adjusted earnings per share: $2.36 vs. $2.36 expected
- Adjusted income: $15.41 billion vs. $15.45 billion expected
For the three months ended June 30, Delta brought in adjusted revenue of $15.4 billion, up 5.4% from a year ago and shy of Wall Street estimates. Net income fell almost 30% from a year earlier to $1.31 billion, or $2.01 per share, with operating expenses down 10% from a year earlier. Adjusting for one-time items, Delta reported earnings of $1.53 billion, or $2.36 per share, in line with analysts’ estimates.
“The second quarter was a really strong performance,” CEO Ed Bastian said in an interview. “What you see happening is the impact on the domestic market in the lower rate cut that happened this quarter.”
Bastian said lower US industry capacity by late summer will better match demand. Delta said corporate travel continues to grow and that most customers expect to maintain or increase their corporate travel spending this quarter and beyond.
Revenue from international travel has been strong since the pandemic waned, although airlines have expanded schedules, meaning more competition for customers. The unit’s revenue for transatlantic flights will take a 1 percent hit from the summer Olympics in Paris, Delta said. The impact equates to about $100 million from June to August, Bastian told CNBC. The airline has more capacity to the French capital than rivals through its partnership with Air France.
In the current quarter, Delta expects to break more revenue records. It said it expects sales to rise up to 4% and expects adjusted earnings per share of $1.70 to $2 per share, less than the $2.05 per share that analysts polled by LSEG were expecting.
Despite the slightly lower than expected outlook, Delta is a standout in the airline industry. It is the most profitable of the US carriers, some of which are struggling to turn a profit. Rival United Airlines, which reports results next Wednesday is trying to catch up to Delta, and the two companies have been racing to add more premium seats. Analysts have more “buy” ratings on Delta and United than any other US airline.
Delta reported that premium ticket growth, such as those for first class, rose 10% in the second quarter to $5.6 billion, while revenue from coach tickets rose 0.3% to about $6.7 billion. It is profitable American Express The credit card deal brought in $1.9 billion, up about 9% from last year.
Bastian said Delta is “pretty well insulated” from industry overcapacity because it gets much of its revenue from premium seats and other sources instead of standard coach fares.
Delta reiterated its full-year earnings forecast of $6 to $7 per share and said it still expects to generate free cash flow of up to $4 billion.