IMPORTANT POINTS:
- Delta Air Lines reported a nearly 60% increase in its third-quarter earnings.
- Despite the increase in fuel prices, the airline maintains encouraging projections.
- Demand for international travel and premium seating has significantly boosted Delta’s profits.
The airline Delta Air Lines (DAL) has seen an impressive increase in its profits, recording an increase of almost 60% in the third quarter. This encouraging trend is primarily attributed to strong summer travel interest, with especially strong demand for international travel.
However, Delta has adjusted its projections for total annual earnings to the lower end of a previous estimate. This adjustment is due to a significant increase in fuel prices. In its quarterly report, Delta anticipates adjusted earnings of between $6 and $6.25 per share, revising a previous guidance of $6 to $7 per share made in July.
Additionally, Delta lowered its annual free cash flow estimate to $2 billion, down from the $3 billion it had projected earlier in the summer.
On the other hand, the airline maintains a positive vision for the last quarter of the year. It estimates that revenue will increase between 9% and 12% compared to the same quarter in 2022. In terms of earnings per share, Delta forecasts a figure between $1.05 and $1.30, in line with market expectations.
Ed Bastian, CEO of Delta, mentioned in an interview with CNBC that he expects many of the trends observed to continue in the fourth quarter. Additionally, he pointed to near-term pressure on fuel, as prices rose rapidly in the third quarter and remained high into the fourth.
Comparison with Wall Street expectations
Delta’s performance in the three months ended September 30 was remarkable, and in some respects, exceeded Wall Street’s expectations. Here are some of the key data:
- Adjusted earnings per share: $2.03 vs. $1.95 expected.
- Adjusted revenue: $14.55 billion vs. $14.56 billion expected.
Net income for the period was $1.11 billion, or $1.72 per share. This represents an increase of 59% compared to $695 million, or $1.08 per share, in the same period a year earlier.
Delta Trends and Performance
Global airlines, including Delta, have reported especially strong demand for overseas travel. In fact, transatlantic travel has been particularly popular. Atlanta-based Delta reported that revenue from these flights increased 34% in the third quarter compared to a year earlier.
Delta’s aircraft occupancy was 88% during the quarter, an increase of 1% from a year ago. This was achieved despite increased capacity both domestically and internationally. However, passenger unit revenue decreased 1.5% year over year.
Another relevant fact is the rise of premium seats. Delta has seen a significant increase in demand for these seats, whether business class or premium economy. Main cabin revenue reached $6.62 billion, an increase of 12% compared to the previous year, while premium product sales increased 17% to $5.11 billion.
The overall outlook for Delta is encouraging, especially when looking at certain segments of its business. “I know the lower fare airlines are facing some challenges, but our premium product, especially domestically, is performing very, very well,” Bastian said in the interview. Additionally, he added that business travel has recovered by more than 80% to 2019 levels.
However, not everything has been smooth sailing for the airline. Glen Hauenstein, Delta’s president, mentioned on an earnings call that strikes in Hollywood and among auto workers have hurt demand coming from those sectors.
Another point that highlights Delta’s strength in the market is its participation in certain strategic airports. Delta has a market share of more than 70% in Detroit and almost 20% at Los Angeles International Airport, being the airline with the largest presence in both terminals.
