Atlanta-based carrier Delta Air Lines forecast a record-breaking revenue in the third quarter of 2023, fueled by the strong demand for summer travel. However, this forecast slightly exceeded analyst estimates, since the industry is feeling the dent from discounted fares because of an oversupply of flights.
Delta, in its quarterly earnings call, forecasted revenue growth of up to 4% in the current quarter from the year-earlier period. In addition, it expects adjusted per-share earnings of $1.70 to $2.00, which is below the Wall Street expectation of $2.05 EPS.
Second-quarter results underscored solid performance but also shed light on the headwinds that fell on the airline businesses. In the quarter that ended on the 20th of June, the carrier reported adjusted revenue of $15.41 billion, up 5.4% from the same period in the prior year but slightly below Wall Street expectations of $15.45 billion. Net income would seem to have plunged nearly 30% versus the same period in the prior year, to $1.31 billion, or $2.01 per share. Adjusted profit, before one-time items, rose to $1.53 billion, or $2.36 a share, also in line with expectations of analysts whose estimates were surveyed by FactSet.
CEO Ed Bastian commented on the results, saying, “The second quarter was a really strong performance. What you see happening is the impact in the domestic marketplace to the lower fare discounting that’s been going on this quarter.” Recent consumer price data supported this, showing airfares in June were 5.1% lower versus a year earlier and 5.7% below the previous month.
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Even with all of these odds against it, Delta still manages to come out as the most profitable carrier among American airlines. Such financial elasticity is in part pegged to the group’s wide revenue base, as premium ticket sales leaped by 10% to $5.6 billion in the second quarter from a year earlier, and coach ticket revenue was up only 0.3% at around $6.7 billion. In addition, the American Express partnership remained lucrative for the company at $1.9 billion, up 9% year over year.
Looking ahead, flying capacity is expected to rise 5% to 6% in the third quarter from a year earlier, a slower pace than last quarter’s 8% growth. The company reiterated its full-year earnings forecast of $6 to $7 a share and said it plans to generate as much as $4 billion in free cash flow.
In fact, all airlines are fighting to survive, with American Airlines and Southwest Airlines reducing their revenue forecasts for the second quarter. The Transportation Security Administration screened more than 3 million people — a record for the first time on a single day at U.S. airports, pointing to robust travel demand but also heftier competition among carriers.
Following the news, Delta’s stock price fell 4% to $44.99 on Thursday after the opening bell. The decline affected other major airlines as well. While the company faces these challenges, the outlook among many industry analysts remains as upbeat as possible on Delta, according to Melius Research airline analyst Conor Cunningham, who said, “The reality here though is that Delta’s financials remain among the best in the industry ., which speaks to just how bad the low end of the US domestic market is today.”
With an environment of high demand and rising capacity, the uphill battle that the airline industry faces is only gaining steepness. Continuing these efforts to show resilience is Delta Air Lines, with its investment in premium products and diversified revenue streams, which dissected the U.S. aviation market and placed this operator at a leading edge.