Delta Tops Estimates, Trims 2023 Profit Outlook on Costs

Delta Air Lines Inc. quarterly earnings beat analysts’ estimates, but the carrier cut the high end of its outlook for 2023 profit on rising fuel prices and larger-than-expected aircraft maintenance costs.

(Bloomberg) — Delta Air Lines Inc. quarterly earnings beat analysts’ estimates, but the carrier cut the high end of its outlook for 2023 profit on rising fuel prices and larger-than-expected aircraft maintenance costs.

Adjusted earnings per share will be $6 to $6.25, Delta said in a statement Thursday. That compares with $6.03, the average of analyst estimates compiled by Bloomberg. 

Several analysts had estimated Delta would make a larger cut to its previous guidance for full-year earnings of up to $7 a share. The airline was expected to earn $5.56 by Savanthi Syth of Raymond James, $5.85 by Andrew Didora of Bank of America and $6 by Barclays’ Brandon Oglenski and Jefferies’ Sheila Kahyaoglu.

Delta’s results, its fourth-quarter and full-year outlook “certainly does not strike us as an entity whose fundamentals are being hit by any demand slowdown,” Stephen Trent, a Citi analyst, said in a note.

Delta shares rose 0.5% to $36.15 at 9:38 a.m. in New York. The stock gained 9.5% year to date through Wednesday to lead other members in the S&P 500 Index of the five largest US carriers.

 

Delta is the first major US carrier to report financial results for the third quarter, a period when the largest globally focused airlines benefited as international summer travel extended into the fall. But airlines were battered by a nearly 25% sequential jump in fuel prices. And Delta’s maintenance spending climbed unexpectedly on higher costs, longer repair times and supplier problems with engine parts. 

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“Fuel prices have moved meaningfully against us over the course of this quarter,” Chief Executive Officer Ed Bastian said in an interview. The airline’s Trainer refinery near Philadelphia, which provides some price relief, is also temporarily shuttered for maintenance. 

A group of 12 US carriers is expected to have a $4.3 billion operating profit in the third quarter, with $4.1 billion of that generated by the three largest airlines, according to Michael Linenberg, a Deutsche Bank analyst. That cohort — American Airlines Group Inc., United Airlines Holdings Inc. and Delta — will have combined revenue of $42.5 billion. 

Revenue for the full year will increase about 20% year over year, Delta said. The airline lowered its projection for 2023 free cash flow to $2 billion from $3 billion previously, and said its operating margin would be about 11.5%, down from guidance of more than 12% in July. 

A “tremendous amount” of constraints affecting parts and engine maintenance work across the industry is complicating “the last part of the Covid recovery — getting our supply chain and maintenance investment in our fleet to the level of health we need,” Bastian said. That work will continue for another 12 months, he said.

Passenger revenue from international trips rose 35% year over year in the third quarter and “robust” demand is continuing this quarter, Delta said. Domestic travel demand is “steady,” the carrier said. Bastian said corporate travel “is showing some pretty good signs of growth” since early September as more companies require workers to return to offices. 

Delta had a third-quarter adjusted profit of $2.03 a share, compared with analysts’ expectations for $1.94. Revenue was $14.6 billion, narrowly topping the $14.5 billion seen by analysts. 

Delta also said it expects fourth-quarter earnings of $1.05 to $1.30, compared with the average analysts’ estimate of $1.11. Revenue will increase 9% to 12%, while analysts expect a 10.8% improvement. Capacity will increase as much as 15%. 

Bastian said that the airline is “getting very close” to unwinding some of the extensive changes to its SkyMiles loyalty program that were announced last month, triggering a wave of negative feedback. He declined to detail specifics, but said an announcement could be made “in coming days.”

(Updates shares in fifth paragraph)

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