Delta airlines On Thursday, it forecast record third-quarter revenue thanks to surging summer travel demand, but its projection fell short of analysts' estimates as airlines discounted fares after expanding flights.
In the current quarter, Delta expects sales to rise no more than 4%, below the 5.8% growth estimated by analysts surveyed by LSEG, and forecast adjusted earnings per share of $1.70 to $2 per share, below the $2.05 per share estimated by analysts.
Delta shares fell about 8% in early trading. Other U.S. airlines were also trading lower.
The Atlanta-based airline kicked off an earnings season marked by full planes Thursday but with profits under pressure as costs rise and increased capacity weighs on fares. The Transportation Security Administration said it screened more than 3 million people at U.S. airports for the first time on Sunday.
Delta stands out in the U.S. airline industry as the most profitable carrier, and Thursday's report is a sign that competitors, particularly those focused on the oversupplied U.S. air travel market, could struggle this summer.
Rival united airlinesUnited, which is scheduled to report earnings next Wednesday, is trying to catch up with Delta's profitability, and both airlines have been racing to add more premium seats that generate more revenue from consumers. Analysts have the most favorable ratings for Delta and United compared with other U.S. airlines.
Here's how Delta performed in the second quarter, compared to Wall Street expectations based on LSEG consensus estimates:
- Adjusted earnings per share: $2.36 vs. $2.36 expected
- Adjusted earnings: $15.41 billion versus the expected $15.45 billion
For the three months ended June 30, Delta posted adjusted revenue of $15.4 billion, up 5.4 percent from a year ago and below Wall Street estimates. Net income fell nearly 30 percent from a year ago to $1.31 billion, or $2.01 a share, and operating expenses rose 10 percent from a year ago. Adjusted for one-time items, Delta reported profit of $1.53 billion, or $2.36 a share, in line with analyst estimates.
“The second quarter was a really strong quarter,” Chief Executive Ed Bastian said in an interview. “What you're seeing is the impact on the domestic market of the rate discounts that have been implemented this quarter.”
Airfare prices in June were 5.1% lower than a year earlier and 5.7% lower than the previous month, according to Thursday's latest reading on consumer prices, which showed a slowdown in inflation.
Bastian said the industry's lower capacity in the U.S. later this summer will better match demand. Delta said corporate travel continues to increase and most customers expect to maintain or increase their corporate travel spending this quarter and beyond.
The airline expects to increase its flight capacity by 5% to 6% in the third quarter compared with last year, a slower pace than the 8% increase it made in the second quarter. Bastian told CNBC that he expects Delta's unit revenue to be positive compared with last year in September.
International travel revenue has been strong since the pandemic eased, though airlines have expanded their schedules, meaning more competition for customers. Unit revenue from transatlantic flights will take a 1 percentage point hit from the Summer Olympics in Paris, Delta said. The impact is equivalent to about $100 million between June and August, Bastian told CNBC. The airline has more capacity to reach the French capital than its rivals through its partnership with Air France.
Delta reported that growth in premium tickets, such as first class, rose 10% in the second quarter to $5.6 billion, while revenue from economy class tickets increased 0.3% to about $6.7 billion. American Express The credit card deal generated $1.9 billion, 9% more than last year.
Bastian said Delta is “pretty well insulated” from industry overcapacity because it gets much of its revenue from premium seating and other sources rather than standard economy class tickets.
Delta reiterated its full-year earnings forecast of $6 to $7 a share and said it still expects to generate free cash flow of up to $4 billion.
