DELTA’S DISAPPOINTING OUTLOOK SENDS WARNING ON SUMMER TRAVEL

(Bloomberg) -- Delta Air Lines Inc. warned that domestic carriers are struggling to fill planes in the all-important summer travel season, dragging down ticket prices in a fare war that’s weighing on profits.

The airline offered the grim assessment Thursday as it reported worse-than-expected financial results and a weak outlook for the current period. Adjusted earnings will be $1.70 to $2 a share in the third quarter, it said in a statement, compared with the $2.04 average of analysts’ estimates compiled by Bloomberg. Revenue will increase no more than 4%, below expectations for a 5.3% bump.

The forecast highlights the broad impacts as airlines — particularly in the lower end of the market — compete to fill extra seats added during the high-demand summer season. Rivals across the industry are forced to match lower fares to remain competitive.

“Excess supply has led to heavy discounting,” Delta Chief Executive Officer Ed Bastian said in an interview. “Like everyone, you get impacted.”

Ticket price cuts have been “particularly acute” for June through August, Bastian said, estimating that industry capacity is exceeding demand by 3% to 4%.

Delta’s shares fell 9.1% at the market open in New York, the biggest intraday drop since January. That pared a 2024 gain that had been the best among the major US carriers. Rivals United Airlines Holdings Inc. and American Airlines Group Inc. each slid more than 5% Thursday. Overseas competitors IAG SA and Deutsche Lufthansa AG declined as well.

Delta’s outlook “will likely raise concerns about industry health” and create more pressure for discount carriers to reduce capacity, Thomas Fitzgerald, a TD Cowen analyst, said in a note.

The carrier isn’t the first to indicate issues with lagging revenue this summer. Southwest Airlines Co. reduced its estimate for second-quarter unit revenue last month, citing problems adapting to “current booking patterns.” American slashed its profit and sales expectations in late May after it misjudged domestic demand.

Delta, the first US airline to provide a third-quarter preview, said it’s planning to slow growth now that it has fully restored its core airport hubs and international network. Capacity expansion this quarter will be no more than 6%.

The carrier is grappling with heavy costs, including a $500 million annual increase in labor spending after giving most employees a raise on June 1, and a $350 million increase in maintenance spending. Non-fuel costs to fly a seat one mile, a gauge of efficiency, will increase as much as 2% from 2023.

Delta maintained its full-year earnings forecast of $6 to $7 a share and free cash flow of as much as $4 billion.

Uneven Performance

The US airline industry has faced an uneven year, as fare discounts, persistently high costs and supply-chain woes have offset the benefits of record summer passengers and rebounding corporate travel. Delta had largely sidestepped many of the most prominent challenges plaguing competitors, including activist investors, late jet deliveries and labor unrest.

Delta’s volumes for lucrative corporate travel rose about 13% in the second quarter, Bastian said, and revenue from international passengers increased over 2023. Sales of premium products jumped 10% year over year, while main cabin ticket revenue was little changed.

Still, adjusted profit in the period was $2.36 a share, falling just short of the average $2.38 expected by analysts. Revenue was $15.41 billion.

Delta has restored its normal schedule for retiring older planes, after operating some for longer periods because of delays in receiving new aircraft and supply-chain chokepoints that were holding up new engines and replacement parts. It expects to get 40 to 50 new planes this year from Airbus SE, with deliveries “plus or minus within a couple of months” of schedule.

--With assistance from Siddharth Philip.

(Updates with share trading in sixth paragraph)