Delta Air Lines reaffirms profit outlook as fare gains support revenue growth

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Delta profit outlook and fares

Highlights

Delta Air Lines reaffirms full-year adjusted earnings forecast at $6.50 to $7.50 per share and projects Q3 adjusted earnings of $2.00 to $2.50 per share, above analyst consensus.
Q2 revenue grows nearly 14% with only 1% capacity growth as passenger revenue per available seat mile rises 11%, highlighting pricing power over volume expansion.
Despite a 26% Y/Y decline in Q2 adjusted earnings to $1.56 per share due to $1.9 billion higher fuel expenses, Delta recovers about 60% of the fuel cost increase and expects continued revenue strength.

Third-quarter outlook and pricing strength

As reported by Reuters, Delta Air Lines reaffirms its full-year adjusted earnings forecast at $6.50 to $7.50 per share and issues a stronger-than-expected third-quarter outlook. The airline forecasts third-quarter adjusted earnings of $2.00 to $2.50 per share, versus analysts' average estimate of $2.02, alongside mid-teen revenue growth and an operating margin of 11% to 13%.

Chief Financial Officer Erik Snell says Delta recovers about 60% of the fuel cost increase in the second quarter, faster than historically, and expects to recover more in the current quarter. He says demand continues to be strong, with no sign of weakness or a shift in booking patterns, adding that the airline has not seen elasticity.

Snell says fuel price volatility remains a major factor in whether Delta reaches the upper end of its annual earnings range. He also says the carrier expects revenue strength to continue through the end of the year.

Capacity discipline and sector implications

Delta's results indicate airlines are currently generating revenue growth more through pricing than through additional flying. The company reports nearly 14% revenue growth in the second quarter on about 1% capacity growth, while passenger revenue per available seat mile rises 11% from a year earlier.

Snell says Delta's third-quarter volume is roughly flat to slightly higher from a year earlier, suggesting fares and passenger mix are contributing more to growth than expanded capacity. Premium revenue rises 17% in the second quarter, while main-cabin ticket revenue also grows 8%, reinforcing Delta's view that demand remains broad-based.

Analysts say the larger test for the industry comes after the Labor Day holiday in September, when leisure travel typically softens. They warn that fourth-quarter capacity plans remain the biggest risk to current fare strength, because a sharp return of flights could weaken pricing gains secured during the spring fuel shock.

Higher fuel costs lead to a 26% decline in Delta's second-quarter adjusted earnings to $1.56 per share from a year earlier, although that still tops analysts' expectations of $1.48. Delta says it absorbs the highest quarterly fuel expense in its history, up $1.9 billion from a year earlier, and Snell says the airline's fuel bill is about $4 billion higher this year than last year; for the third quarter, it assumes a fuel price of about $3.15 a gallon.

EasyJet’s privatization plan to move into private ownership was previously covered in our publication, highlighting the carrier’s aim to gain more flexibility to restructure and invest as costs rise and competition intensifies in Europe. We noted that management sees going private as a way to support longer-term decision-making and targeted upgrades in technology and customer service while the sector continues its post-pandemic recovery.

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