By Rajesh Kumar Singh
CHICAGO (Reuters) -Delta Air Lines on Thursday forecast higher-than-expected profit for the current quarter, citing “record” bookings for summer travel, even as the carrier missed first-quarter profit estimates due to higher fuel and labor costs.
Shares of the carrier were initially up about 4%, but fell 3% in morning trade as investors parsed through the results for cues on risks to demand from rising costs. Rivals American Airlines and United Airlines were down about 1%.
Delta Chief Executive Ed Bastian, in an interview with Reuters, said fuel price volatility and bad weather affected the company’s performance in the first quarter.
American Airlines on Wednesday forecast first-quarter profit below market expectations, joining rival United Airlines in signaling a hit from higher costs.
U.S. carriers have tried to leverage travel demand with higher ticket prices to offset rising labor and fuel bills. But investors fear that any pullback in travel spending would hurt airline profits.
Bastian, however, remains upbeat about consumer demand despite growing risks of an economic recession. The airline is in fact doubling down on more profitable premium travel, after premium cabin revenue grew faster than the main cabin in the first quarter.
“Consumers are anxious to travel,” Bastian said, adding that demand for international travel was especially strong this summer and travelers were booking trips well in advance.
“The second quarter setup looks solid, and features key international corridors leading unit revenue growth, and continued solid results from the carrier’s (Delta) co-branded card,” said Citi analyst Stephen Trent.
Travel demand in the United States is currently strong but rising interest rates, persistently high inflation, mounting job losses and a turmoil in the banking industry have cast a shadow over consumer spending.
Bastian downplayed these concerns. He said Delta recorded the 10 highest sales days in its history last month and was able to protect its pricing power despite adding capacity.
The company’s earnings in the January-March quarter, however, fell short of Wall Street estimates.
For the June quarter, Delta expects its revenue to rise 15% to 17% from a year earlier on capacity growth of 17%.
“We’re growing supply at that level and not seeing a deterioration in the overall revenue,” Bastian said. “It’s unusual in our industry.”
Delta expects an adjusted profit of $2.00 to $2.25 per share in the second quarter, with an operating margin of 14% to 16%. Analysts, in comparison, estimated a profit of $1.66 per share.
Non-fuel costs for the quarter are projected to rise between 1% and 3% year-on-year. Delta pilots last month ratified a new contract that includes over $7 billion in cumulative increases in pay and benefits over four years and is widely expected to be a benchmark for contract negotiations at rival carriers.
Delta retained its full-year earnings forecast after reporting first-quarter adjusted profit of 25 cents a share, compared with analysts’ average estimate of 30 cents.
(Reporting by Rajesh Kumar Singh; Editing by Jamie Freed and Shinjini Ganguli)
