Delta’s second-quarter results lagged behind expectations, despite ‘healthy’ travel demand

Delta Air Lines (DAL) reported record revenue during the June quarter on Thursday, but airfare discounts pressured profits, which fell below analyst expectations.

Here’s how Delta performed against Bloomberg consensus estimates in the second quarter:

• Adjusted net profit: $1.528 billion versus $1.531 billion expected

• Adjusted earnings per share: $2.36 versus $2.38 expected

• Gain: $15.41 billion versus $15.44 billion expected

Delta CEO Ed Bastian told Yahoo Finance that demand for summer travel remained “very, very healthy,” contributing to the company’s second-highest earnings performance behind the second quarter of 2023. However, he acknowledged that some consumers are becoming more price sensitive.

“Our second quarter was very strong,” Bastian said. “As we look at the third quarter, we see another strong quarter. In the domestic market, a little bit of the price sensitivity is starting to take hold, and that is in the lower rates.”

The company reiterated its full-year earnings forecast of $6 to $7. For the third quarter, Delta expects earnings to be between $1.70 and $2.00, below the $2.03 figure reported in the same quarter last year.

Meanwhile, demand for air travel continues to reach new highs. According to TSA passenger throughput data, the number of people traveling by air in 2024 will exceed 6% in 2023 – an average of 145,860 additional customers per day.

“Our consumers are the driving force behind the experience economy,” said Bastian, “whether they’re traveling to Europe to attend a Taylor Swift concert or visiting friends in another part of the country – that drives a huge amount of our stability.”

Delta shares were almost 8% lower in pre-market trading on Thursday. Year to date, the airline’s shares are up more than 16%.

Airline tickets and international expansion

Despite the increased pace of travel, ticket prices have fallen, which could lead to a slowdown in margin growth for the airline sector.

Heading into the summer season, US airline ticket prices fell 5.9% in May compared to a year earlier.

One factor contributing to lower rates is the extra capacity. Another example is the destinations that passengers want to travel to.

An analysis by Bloomberg Intelligence shows that travel to Latin and South America is expected to reach post-pandemic peaks in the second and third quarters, with 30%-40% more trips to these endpoints compared to 2019.

“That will likely put pressure on rates and earnings,” Bloomberg Intelligence senior analyst George Ferguson wrote in a May report.

The story continues

Delta has expanded the number of routes to and from the Latin American, Caribbean and South American markets. The Latin American segment was a key driver of 4% international travel revenue growth during the quarter as the airline sought to fill gaps on its map.

“While that region has been a little slow to recover from COVID in recent years, it is recovering quite well,” Bastian said. “We are happy with that, because we realize that these are markets [where] Our market share opportunities are quite important to us, and we want to take advantage of that.”

“But it also drives prices down, because all the capacity comes back and… [has] which is certainly a price-sensitive consumer in that range,” Bastian added.

Days before reporting results, Delta announced another international partnership with Riyadh Air in its latest strategic expansion. The operators will be each other’s exclusive partners for customers traveling between North America, the Kingdom of Saudi Arabia and connecting destinations.

“The first flights will start next summer,” said Bastian. “A few months ago I had the opportunity to spend several days in Riyadh just to learn for myself and see what’s happening on the ground. And it was quite amazing how much transformation was happening in all aspects of that market … from a people’s point of view … to a massive $800 billion investment in tourism on the Saudi Arabian peninsula that is being pushed out of Riyadh.”

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