Delta sees annual profit trending higher despite tech outage

Delta Air Lines Inc. said profit this year could reach the high end of its prior guidance – if investors ignore the financial blow from this summer’s system meltdown.

Adjusted earnings will be at or above the midpoint of its forecasted range of $6 to $7 a share, the carrier said Thursday in a regulatory filing. The updated expectations exclude a 45-cent impact from the CrowdStrike Holdings Inc. disruption, which led Delta to cancel thousands of flights over several days in July. Analysts have been expecting a per-share profit of $6.12. 

Delta was most severely affected by the computer software shutdown among US airlines. Revenue for the third quarter will be flat to up 1% from a year ago, including an estimated $380 million reduction related to the flight chaos in July. That compares to an earlier outlook for revenue to be as much as 4% higher than a year ago. 

Executives from the airline told analysts at an industry conference Thursday there’s been no lingering effect from the outage, which temporarily prevented Delta from processing changes to flights and their crews, and the airline is keeping its earlier estimate on the financial impact. 

“The underlying drivers are quite good,” Glen Hauenstein, Delta’s president, said at the Morgan Stanley conference. “We’re pleased with the performance of the business in the quarter, with the demand backdrop, where we’re sitting with fuel. We feel really good about the year.”

Delta shares rose 1.2% to $44.79 as of 11:57 a.m. in New York. The stock is up about 11% this year.

The company joined smaller carriers in reporting broadly improving unit revenue trends, in part due to a slowdown in domestic capacity expansion. Too many seats in the market pressured fares early in the summer, preventing airlines from fully benefitting from record travel demand. 

Alaska Air Group Inc., which picked up some Delta customers during the IT system crisis, raised its third-quarter profit outlook Thursday to $2.15 to $2.25 a share from an earlier estimate of as much as $1.60, and JetBlue Airways Corp. last week said revenue would be up 1% to down 2.5% year-over-year. It had earlier expected a drop of as much as 5.5%.

Non-fuel unit costs will increase about 5.5% in the current quarter, while Delta had earlier expected an increase of as much as 2%. It includes about $170 million paid out for passenger reimbursements during the outage and spending related to misplaced crews.

Third-quarter earnings per share will be at the high end of its prior guidance for $1.70 to $2, also excluding the CrowdStrike outage, Delta said. Wall Street had been expecting $1.57 a share based on analyst estimates compiled by Bloomberg. 

Delta and CrowdStrike have sparred over what technical assistance was offered when and who was responsible for the slow recovery time at Delta. The carrier has hired prominent attorney David Boies to pursue legal claims against CrowdStrike and Microsoft Corp., on whose operating system that software ran, to recover damages.

CrowdStrike’s glitch caused a “catastrophic shutdown” of more than 8 million computers around the world, including 37,000 at Delta, Boies said in a letter last month to CrowdStrike’s attorney. The disruption affected more than 1.3 million customers of the airline, and about 60% of its “mission critical” applications, including backup systems, that depend on the Microsoft Windows operating system and CrowdStrike, he said.

The US Transportation Department opened an investigation of the incident to make sure Delta was following requirements for disruptions within an airline’s control that include issuing vouchers for meals, hotels and rebookings on another airline, and providing a full cash refund under certain circumstances. The inquiry was prompted by 3,000 passenger complaints filed with the department.