Delta Lifts Guidance As Travel Boom Is Here To Stay

On Thursday, Delta Air Lines DAL posted a quarterly earnings surprise and lifted its full year profit outlook as travel remains among top priorities for consumers. Delta posed its highest ever quarterly earnings as its bottom line benefited from strong international travel demand and lower fuel costs. Meanwhile on Wednesday, its rival United Airlines UAL unveiled its nearly once-in-a-decade refreshment of seats as airlines continue to fight for premium passengers.

Delta’s Latest Figures Confirm That Travel Is Hot This Summer But Aviation Structure Remains Fragile

Delta CEO Ed Bastian stated that capacity constraints that U.S. carriers are having, in terms of aircraft, spare parts and labor issues, are disabling them from catching up with demand. Despite persistently high inflation that is weakening customers’ budgets, consumers are cutting spending elsewhere to be able to provide for experiences, helping to maintain the post-pandemic travel boom and possibly leading to a multi-year phenomenon.

Airlines are still enjoying pricing power even though there are signs air fares have peaked.

Delta's proxy for pricing power shows airlines remain in power as its total revenue per seat mile was up 1% YoY in the second quarter, with a 17% jump in capacity, and it is expected to remain strong. Bastian noted that fees have normalized after capacity constraints and strong demand drove them high with Delta’s pricing still holding up. According to the inflation read, fares went down almost 19% in the U.S. in June compared to 2022’s June and 8% from May.

Quarterly Highlights

For the quarter that ended on June 30th, Delta made $14.61 billion in adjusted revenue that excludes sales from its refinery, topping the expected $14.49 billion based on Refinitiv consensus estimates as it rose 19% YoY. Total revenue amounted to $15.58 billion, rising 13% YoY. Trans-Atlantic travel revenue went up more than 60% compared to last year, while domestic revenue rose 8% and overall passenger revenue expanded 8%.

Net income for the quarter amounted to $1.83 billion, being its highest since 2013’s fourth quarter $735 million, with the bottom line benefiting from 22% drop in its fuel costs. Adjusted earnings per share amounted to $2.68 cents, exceeding the expected $2.40 and rising from last year’s comparable quarter when they amounted to $1.44.

Delta’s Outlook

In the undergoing, third, quarter, earnings are expected in the range between $2.20 to $2.50 a share, topping analyst expectations on a 16% increase in capacity. Revenue is expected to grow 14% YoY.  As for full year 2023, adjusted earnings forecast was lifted from prior $5 to $6 per share range to $6 to $7 a share, on the back of strong international demand remaining through the fall along with a steady increase in sluggish corporate travel bookings.

United Unveils Its First-class Seats Upgrade

On Wednesday, United became the latest carrier to upgrade its cabin in attempt to lure in premium passengers by unveiling its first new seat in nearly a decade for passengers at the front of the plane.  The upgraded first-class seat will be installed on 200 domestic flight planes that were not refreshed since 2015. Delta already upgraded its first class seat with privacy barrier last year as well as did JetBlue Airways JBLU to provide more comfort to premium customers with its redesigned Mint class whose seats have sliding doors.The new United Airlines first-class seat will make its debut this month at The Boeing Company BA-made 737 plane.

Travel Boom Isn't Going Anywhere Anytime Soon

As the airline industry continues to rebuild its empire after the Covid pandemic horror, Delta has set an upbeat tone as airlines make most of their money in the second and third quarters, defying fears of a sluggish economy hampering demand for travel. With Delta being the first who reported its second quarter results, United Airlines and American Airlines AAL will be following with their reports next week.

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