Delta Air Lines (DAL) on Thursday reported record June-quarter revenue, but cuts to airfares weighed on profits that fell short of analysts’ expectations.
Here’s how Delta’s second-quarter results compared to consensus estimates compiled by Bloomberg:
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Adjusted Net Income: $1.528 billion (prediction: $1.531 billion)
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Adjusted earnings per share: $2.36 vs. expected price of $2.38
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Revenue: $15.41 billion vs. expected $15.44 billion
Delta Air Lines CEO Ed Bastian told Yahoo Finance that summer travel demand remains “very strong,” helping the airline post its second-highest revenue performance ever after the second quarter of 2023. But he acknowledged that some consumers are becoming more price sensitive.
“The second quarter was really strong,” Bastian said, “and the third quarter looks set to be another strong quarter. We’re starting to see a little bit of price sensitivity in the domestic market, and it’s happening at the lower end of the fare spectrum.”
The company reiterated its full-year earnings outlook of $6 to $7 a share. For the third quarter, Delta expects earnings to be in the range of $1.70 to $2.00 a share, down from the $2.03 it reported in the same quarter last year.
Meanwhile, demand for air travel continues to reach new heights: According to TSA passenger processing data, the number of people traveling by plane in 2024 will be 6% higher than in 2023, an average of 145,860 more people per day.
“Our consumers are driving the experience economy,” Bastian said. “Whether it’s traveling to Europe to see a Taylor Swift concert or traveling to see a friend in another part of the country, that’s a big part of what keeps us stable.”
Delta Air Lines shares fell about 8% in premarket trading on Thursday. The airline’s shares have risen more than 16% since the beginning of the year.
Airfares and international expansion
Even as the pace of travel quickens, ticket prices are falling, which could slow the growth of profit margins in the airline industry.
U.S. airfares fell 5.9% in May from a year earlier amid the peak summer travel season.
One of the reasons fares have fallen is because of increased capacity, another is the destinations passengers are choosing to travel to.
Travel to Latin and South America is expected to hit post-pandemic highs in the second and third quarters, with travel to those destinations projected to increase 30% to 40% compared with 2019, according to a Bloomberg Intelligence analysis.
“This is likely to put pressure on rates and margins,” George Ferguson, senior industry analyst at Bloomberg Intelligence, said in a May report.
Delta Air Lines expanded the number of routes it offers to and from Latin American, Caribbean and South American markets, with the Latin American division driving a 4% increase in international travel revenue during the quarter as the airline sought to fill gaps in its route network.
“The region has been a little slower to recover from COVID over the last few years, but it’s recovered pretty well,” Bastian said. “We know these are markets, so we’re comfortable with that. [where] This market share opportunity is very important to us and we are keen to capitalise on it.”
“But then again, all that capacity will come back, and prices will come down.” [has] “Consumers in that price range are definitely price sensitive,” Bastian added.
Just days before the earnings report, Delta Air Lines announced a new international partnership with Riyadh Air as part of its latest strategic expansion, with the two airlines becoming each other’s exclusive partners for customers traveling between North America, the Kingdom of Saudi Arabia and connecting destinations.
“The first flights are expected to begin in the summer of next year,” Bastian said. “I had the opportunity to spend a few days in Riyadh a few months ago and see for myself what’s going on there. It’s really amazing how much change has been made in all aspects of the market. From a people’s perspective, a massive $800 billion investment in tourism across the Arabian Peninsula in Saudi Arabia is being driven out of Riyadh.”
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