Delta’s earnings add more bad news for spiraling airline sector

Shares of Delta Air Lines tumbled Friday after the carrier narrowly lowered its profit forecast for the full year, underscoring challenges the broader industry faces in recapturing pre-pandemic performance.

After falling about 9%, the stock posted its worst one-day drop since March 2022. The slump also weighed on peers. An S&P gauge of the industry’s shares declined the most in 19 months to end the day. Delta shares are down 4.4% so far this year.

The company on Friday reported adjusted earnings and revenue that were slightly ahead of consensus for the fourth quarter, but forecast 2024 profit of $6-7, in line with Bloomberg’s consensus of about $6.50 — down from the prior expectation of “more than $7.”

“Now it feels like the travel bounce back is over and fares are falling, making it almost impossible to compensate for the costs,” said Bloomberg Intelligence analyst George Ferguson. “It’s likely most markets require less supply and its hard to compensate for higher costs when an airline is cutting capacity.”

Friday’s update from Delta is the latest setback for an industry struggling to fully recover from the pandemic. Oil continues to be volatile, with the latest price jump in reaction to the US and UK airstrikes in the Middle East. Domestic demand has slowed as travelers opt for international destinations. Also weighing on the sector is the grounding of the Boeing Co.’s 737 Max 9 aircraft, which caused United Airlines Holdings Inc. and Alaska Air Group Inc. to cancel hundreds of flights last weekend.

The industry faces a long road ahead for a rebound. The S&P’s airlines index is down over 26% from a 52-week high reached in July, which includes a year-end rally spurred by expectations that the Federal Reserve would start cutting rates this year. United reports fourth-quarter earnings on Jan. 22, followed by Southwest Airlines Co. and American Airlines Group Inc. on the Jan. 25.

The industry’s fourth-quarter results are expected to reflect consumers’ continued preference for experiences over goods, favoring airlines with more premium and international offerings rather than low-cost carriers like Frontier Group Holdings Inc. and Allegiant Travel Co., according to strategists at Morgan Stanley

“We expect 2024 to be one of the most consequential years in airline history as more ‘normal’ conditions than recent years will allow the market to finally settle the debate on whether capacity growth can match demand or whether old bad habits will creep back in,” write Morgan Stanley analysts led by Ravi Shanker.