Delta reports third-quarter revenue shortfall, cuts forecast as fuel costs rise 62% from last year
Delta Air Lines (DAL) reported third-quarter results Friday morning that missed the mark as strength in Delta’s premium business was unable to blunt the effects of rising fuel prices. Delta later reduced its forecast, noting that its total fuel bill for the year would increase by $6 billion.
For the quarter, Delta reported third-quarter adjusted revenue of $17.58 billion, slightly below analyst estimates of $17.76 billion by Bloomberg, up 15.7% from a year ago. Delta posted adjusted earnings per share (EPS) of $1.72 versus an estimate of $1.82, on adjusted net income of $1.134 versus an expected $1.23 billion.
Delta said its third-quarter performance was hurt by $500 million higher fuel costs than forecasts issued in July. Delta’s total fuel bill for the quarter reached $4.1 billion, up 62% from last year, as the US-Israeli war against Iran roiled the global oil market.
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Closing: October 8 at 4:00:02 p.m. EDT
Delta stock was down more than 4% in premarket trading.
Speaking of guidance, Delta lowered its adjusted EPS guidance to $5.10 to $5.60 from $6.50 to $7.50, with free cash flow falling to $2.5 billion over a range of $3 to $4 billion.
“For the full year, we expect to generate pretax profit of approximately $4.5 billion, absorbing a $6 billion increase in fuel costs,” CEO Ed Bastian said in a statement. “Looking ahead, we remain focused on profitable growth and achieving our long-term financial framework, including margins and returns of around 15%, sustainable free cash flow and gross leverage of around 1x.”
“It’s all just fuel,” added CFO Erik Snell when asked where the impact of the forecast reduction was coming from during a call with reporters. Snell added that he expects fuel costs to also be higher next quarter, but Delta plans to increase capacity by 2%, a reversal from earlier this year.
It was Delta’s biggest spending customers who helped soften some of the blow this quarter.
Delta’s premium business grew 18% year over year in the third quarter, with loyalty and associated revenue also increasing 18%. American Express (AXP) credit card earnings increased 15% from last year, on track to “exceed $9 billion” for the year, Delta said.
Part of the reason Delta’s premium segment is so strong is the perceived benefits of higher service and better loyalty treatment that Delta’s SkyMiles members expect. However, one area that is a thorn in the side of the airline is wifi on board flights.
Competitors like United (UAL) and American Airlines (AAL), which just announced an expanded Starlink deal, are seeking to oust Delta’s major customers, arguing that the Starlink internet service it offers is unprecedented. Airlines and others that offer Starlink issue “status challenges” to Delta customers, meaning they will immediately match the customer’s status on those airlines, assuming customers continue to spend with them.
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