Delta boosts profit forecast amid rebounding global travel

Delta Air Lines Inc.’s profit is soaring as a rebound in international travel promises to keep planes packed through the crucial summer season — and beyond.

The carrier on Thursday said it will make more money this quarter than Wall Street anticipated as it reported better-than-predicted results for the prior three months. Delta also boosted its full-year profit expectations for the second time in three weeks.

“There is significant growth yet ahead” in travel demand, Chief Executive Officer Ed Bastian said in an interview. Flying “is the No. 1 priority for discretionary spending.”

The airline’s improving outlook highlights the enduring strength of demand in the US coming out of the depths of the pandemic. A record number of passengers are expected industrywide this summer, though investors are keeping an eye on moderating domestic traffic and economic uncertainty.

Delta raised its forecast for adjusted profit to as much as $7 a share in 2023, according to a statement. The revision comes after the company on June 27 guided to the high end of a range topping out at $6. Ahead of Thursday’s report, analysts had predicted per-share earnings of $6.22 on average, according to estimates compiled by Bloomberg.

Its shares rose 2.5% at 9:33 a.m. in New York, pulling up other carriers including American Airlines Group Inc. and United Airlines Holdings Inc. Delta’s stock had surged 46% this year through Wednesday’s close.

Delta’s second-quarter adjusted profit was $2.68 a share, compared with the $2.41 expected on average from analysts and the $1.44 per share it reported a year ago. Revenue of $14.6 billion also topped estimates, buoyed by a 61% surge in sales from international trips.

This quarter, Delta sees earnings of $2.20 to $2.50 a share, above the $2.06 predicted by Wall Street. “Robust” revenue will increase by as much as 14% over the same period of 2022, the company said.

The third-quarter forecast “is much better than expected,” Sheila Kahyaoglu, a Jefferies analyst, said in a note.

‘Inflection Point’

Delta is the first major carrier to detail results and provide an outlook for demand and pricing through the end of the peak summer travel season. A group of 11 US carriers is expected to report a record $58 billion in revenue for the second quarter on strong demand, and operating profit of $7.9 billion, according to Michael Linenberg, a Deutsche Bank analyst.

Delta said it has reached an “inflection point” on costs, as persistently high expenses begin to come down. The company expects as much as a 3% decline this quarter in non-fuel unit costs, Chief Financial Officer Dan Janki said in the statement. Spending on jet fuel, one of the two largest costs for airlines, dropped 24% on lower prices per gallon.

Still, “some cost concerns remain amid operational constraints,” Savanthi Syth, a Raymond James Financial analyst, said in a note. US carriers face limits in increasing capacity because of delayed aircraft deliveries and extended maintenance times due to supply-chain limits.

The carrier said it would accelerate debt repayment, with a goal of retiring $4 billion this year. Adjusted net debt of $19.8 billion has been cut by $2.5 billion since the end of 2022.

Falling costs have contributed to an industrywide decline in ticket prices. US airfares in June dropped 8.1% from the prior month, according to figures released on Wednesday by the Bureau of Labor Statistics. Bastian said that’s a welcome change after airfares surged in 2022.

“We’re in a much more normalized fare environment now,” he said. “Fares are good, quite healthy, but not nearly where they were a year ago.”

The carrier expects lucrative travel by big corporations to steadily increase into the fall, but “it’s going to be modest in terms of growth rates, as it’s been for some period of time,” Bastian said. The executive reiterated his view that further increases in corporate travel are directly linked to more companies requiring workers to return to offices.

Payments to Delta from American Express for spending on their co-branded credit card rose 22% to $1.7 billion in the second quarter from a year earlier.

Delta also said it converted options for 12 Airbus SE A220-300 aircraft into firm orders. The planes are expected to be delivered in 2027 and 2028.