Delta Air Lines ( DAL ) on Thursday reported record revenue during its June quarter, but discounted airfares weighed on earnings, which fell short of analysts’ expectations.
Here’s how Delta performed in the second quarter against consensus estimates compiled by Bloomberg:
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Adjusted net income: $1.528 billion versus $1.531 billion expected
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Adjusted earnings per share: $2.36 vs. $2.38 expected
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Income: $15.41 billion vs. $15.44 billion expected
Delta CEO Ed Bastian told Yahoo Finance that demand for summer travel remained “very, very healthy,” contributing to the company’s second-highest earnings performance after the second quarter of 2023. However, he acknowledged that some customers are becoming more price sensitive.
“Our second semester was really strong,” Bastian said. “As we look into the third quarter, we see another strong quarter. The domestic market is where a little bit of price sensitivity is starting to take hold, and it’s in the lower rate buckets.”
The company reiterated its full-line revenue guidance of $6 to $7. For the third quarter, Delta expects earnings to be in the range of $1.70 to $2.00, down from the $2.03 reported in the same quarter last year.
Meanwhile, demand for air travel continues to reach new heights. According to TSA passenger throughput data, the number of people traveling by air in 2024 is surpassing 2023 by 6% – an average of 145,860 more customers per day.
“Our consumers are driving the experience economy,” Bastian said, “whether it’s traveling to Europe to see a Taylor Swift concert or going to see friends in another part of the country — that’s driving a huge amount of our stability .”
Delta shares were almost 8% lower in premarket trading Thursday. Year to date, the airline operator’s shares are up more than 16%.
Airline tickets and international expansion
Despite the higher pace of travel, ticket prices are down, which could lead to a slowdown in margin growth for the airline industry.
Heading into the peak summer travel season, US airfares fell 5.9% in May from a year ago.
One factor contributing to the lower prices has been increased capacity. Another is the destinations where travelers are choosing to travel.
Analysis from Bloomberg Intelligence forecast that travel to Latin and South America is expected to reach post-pandemic highs in the second and third quarters, with 30%-40% more travel to these endpoints compared to 2019.
“This is likely to put pressure on rates and profit,” Bloomberg Intelligence senior industry analyst George Ferguson wrote in a May report.
Delta has expanded the number of routes to and from Latin American, Caribbean and South American markets. Its Latin America segment was a key driver of the 4% increase in revenue in international travel during the quarter, as the airline operator sought to fill gaps in its map.
“While that region has been … a little slow to recover from COVID over the last couple of years, it’s recovering quite well,” Bastian said. “We’re happy with that because we understand that these are markets [where] Our market share opportunities are very important to us and we want to take advantage of them.”
“But it also lowers prices as, again, all the capacity comes back and … [has] one who is certainly a price-sensitive consumer in that range,” added Bastian.
Days before reporting earnings, Delta announced another international partnership with Riyadh Air in the latest strategic expansion. The operators will be each other’s exclusive partners for customers traveling between North America, the Kingdom of Saudi Arabia and connecting destinations.
“The first flights will start next summer,” Bastian said. “I had the opportunity to spend a few days in Riyadh a few months ago just to learn for myself and see what’s happening on the ground. And it was pretty amazing the amount of transformation in all aspects of that market … from a view people … for a massive $800 billion investment in tourism across the Saudi Arabian peninsula that is leaving Riyadh.
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