Delta Air Lines on Thursday warned of a hit to its fourth-quarter revenue, saying consumers are cutting back on discretionary spending as they want to get home around the upcoming U.S. presidential election.
Still, the Atlanta-based airline said this quarter is shaping up to be one of its most profitable fourth quarters in its history due to improved pricing power and strong vacation travel bookings.
Delta said the Nov. 5 presidential election is expected to reduce unit revenue by 1 percentage point in the December quarter. Some analysts said the blow was worse than expected.
“The U.S. presidential election has been a bigger headwind than most expected,” said Thomas Fitzgerald, an analyst at TD Cowen.
Delta Air Lines said election-related uncertainty will weigh on travel demand for two weeks around Nov. 5, but that it expects bookings to pick up in the weeks that follow.
“As we've seen, domestic travel demand is impacted in the weeks leading up to and following the election,” Delta Air Lines President Glenn Hauenstein told analysts on an earnings call. He added that earnings trends in December “improved significantly.”
These comments helped Delta Air Lines stock pare losses in intraday trading.
The stock fell about 0.1% to $50.78.
The company expects adjusted earnings of $1.60 to $1.85 per share from the current quarter through December, compared with analysts' expectations of $1.70 per share, according to LSEG data. .
Overall revenue for the quarter is estimated to increase 2% to 4% year-over-year due to a 3% to 4% increase in production capacity.
Delta Air Lines said steps taken by U.S. airlines to constrain capacity resulted in improved pricing power in all regions in the third quarter.
We expect this trend to continue in the December quarter.
An oversupply of airline seats in the domestic market during the summer travel season forced airlines to discount fares to fill seats on their planes, negatively impacting revenue.
Since then, U.S. airlines have been conservative with capacity.
Annual growth in domestic seat capacity slowed to 1.5% in October and November from 5.5% in July, BofA analysts said.
A 25% year-over-year drop in jet fuel prices in North America, along with capacity adjustments, is boosting industry earnings expectations and pushing airline stocks higher.
The NYSE Arca Airline Stock Index is up 25% since early August, outpacing the S&P 500's 8% rise. Delta Air Lines' stock price also rose more than 30%.
The company reported adjusted earnings of $1.50 per share in the September quarter, lower than analysts expected of $1.52, primarily due to mass flight cancellations associated with the global cyber outage. .
A July software update by global cybersecurity firm CrowdStrike caused system issues for Microsoft customers, including many airlines.
Although the situation was resolved at other major U.S. airlines the next day, disruption continued at Delta Air Lines.
Approximately 7,000 flights were canceled over five days, disrupting the travel plans of 1.3 million customers.
The company said Thursday that the disruption hurt its third-quarter profit by 45 cents a share.
