Delta Air Lines' Profit Skyrocketed As Travel Demand Stays Strong

With its latest reported quarter, the results of Delta Air Lines DAL reflected a strong travel demand during the summer that fueled a nearly 60% profit rise. However, the carrier guided for full-year earnings toward the low end of an earlier estimate due to an increase in fuel prices. United Airlines Holdings Inc UAL and American Airlines Group AAL are due to report their quarterly results this week.

Third Quarter Highlights

For the quarter that ended on September 30th, Delta made a revenue of $14.55 billion as sales rose 13% YoY but still coming a little short of the $14.56 billion expected. Trans-Atlantic travel particularly stood out among strong international travel demand but the airline did feel a pinch from the ongoing strikes in the automotive and entertainment industries.

Net income rose 59% YoY $1.11 billion, or $1.72 per share while when adjusted earnings amounted to $2.03 as they excluded third-party refinery sales and other items, topping LSEG’s expectation by 8 cents.

Outlook

As for the last three months of the year, Delta expects solid travel demand to continue and expand revenue from 9% to 12% YoY while guiding for per-share earnings in the range between $1.05 to $1.30, in line with estimates. 

With fuel prices pressures since July, Delta’s costs are in for a $400 million addition during the second half of the year. Delta now expects adjusted earnings between $6 and $6.25 per share this year, lowering its July’s forecast that was withing the range of $6 and $7 per share. Full year free cash flow estimate has also been cut from $3 billion to $2 billion.

Delta Somewhat Eased Concerns

Delta CEO Ed Bastian claimed that the airline’s customers are in good financial health, easing concerns that consumers are cutting back on spending due to depletion of household savings, while also adding that the demand for overseas trips has stayed strong into autumn months, but it remains to be seen if this is the case both for United Airlines and American Airlines as last month, their ultra-low-cost peer Spirit Airlines Inc SAVE cut its profit outlook for the third quarter due to intense promotional activity and steep discounting with Frontier Group Holdings ULCC also offering very low fares in order to sell its flight tickets. Certainly, Delta raised the bar for United Airlines and American Airlines. Although Bastien acknowledged some discounting pressure, he does not categorize it as a "material risk" for Delta whose consumer is not the one purchasing the lower fares, just like the consumers of United Airlines and American Airlines who are 'traditional airlines'. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.