Delta Air Lines shares fell more than 5% on Thursday after the airline forecast weaker-than-expected quarterly profit despite a surge in travel demand this summer.
Atlanta-based airline Delta forecast adjusted earnings per share of $1.70 to $2.00 for the third quarter ending in September, below analysts’ expectations of $2.05, and blamed discounting pressures at the lower end of the market for weakened pricing power, according to LSEG data.
The profit outlook cut comes as airlines are enjoying a summer travel boom, with more than 3 million people passing through security checkpoints at U.S. airports in a single day on July 7.
But the boom has not translated into higher revenues for most U.S. airlines, as overcapacity in the industry has eroded pricing power. Major airlines are planning about 6% more seats in the domestic market this month than they did a year ago, according to data from consultancy Cirium.
Main cabin revenue, which accounts for about 49% of Delta’s passenger revenue, was flat in the June quarter. In contrast, premium cabin revenue increased 10% year over year.
“Today’s (Delta’s) earnings report will raise concerns about the health of the industry and increase pressure on low-cost and ultra-low-cost carriers to cut capacity,” TD Cowen analysts said.
Delta Air Lines also reported that transatlantic bookings took a hit as travelers avoided flying to Paris this summer because of the Olympics.
The Atlanta-based airline posted its second-best quarterly performance ever, slightly below last year’s results, the first summer travel season since the pandemic, but faces stiff competition from low-cost carriers.
The average price of a flight at the US’s busiest airports ranges from $260 to $465. According to Bankrate:Meanwhile, low-cost carrier Spirit Airlines is selling domestic tickets for an average of $98. According to Statista.
CEO Ed Bastian said: CNBC Interview Delta said Thursday that the ultra-low-cost carrier’s impact on the airline would be “fairly limited” because the airline offers a wider range of services for first-, business- and economy-class travelers than the low-cost airlines.
Delta Air Lines is the most profitable airline in the United States, with United Airlines in second place.
Both companies Competing to attract premium customers To boost profits: Delta Air Lines’ first-class ticket sales increased 10% in the second quarter.
Delta Air Lines earned adjusted revenue of $15.4 billion in the second quarter, up 5.4% from a year ago, but its net income fell and its operating expenses rose 10% from a year ago as ticket prices continued to fall.
Bastian said customers are feeling the benefits of a surge in demand and lower average airfares, but he expects business to even out in the fall, along with demand.
