Delta Air Lines ( DAL ) reported record revenue for the June quarter, but discounted airfares weighed on earnings, which fell below analysts’ expectations.
Here’s how Delta performed in the second quarter against consensus estimates compiled by Bloomberg:
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Adjusted net income: $1.528 billion vs $1.531 billion expected
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Adjusted earnings per share: $2.36 vs $2.38 expected
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result: $15.41 billion vs $15.44 billion expected
Delta CEO Ed Bastian told Yahoo Finance that summer travel demand remains “very healthy,” contributing to the company’s second-highest revenue performance after Q2 2023. However, he acknowledged that some consumers are becoming more price-sensitive.
“Our second quarter was really strong,” Bastian said. “When we look to the third quarter we see another strong quarter. The domestic market where a little bit of price sensitivity is starting to take hold, and it’s in the lower price buckets.”
The company reiterated its full-year earnings guidance from $6 to $7. For the third quarter, Delta expects earnings in the range of $1.70 to $2.00, below the $2.03 figure reported in the same quarter last year.
Meanwhile, demand for air travel continues to reach new heights. According to TSA passenger throughput data, the number of people traveling by air in 2024 will exceed 2023 by 6% – an average of 145,860 more customers per day.
“Our consumers are driving the experience economy,” said Bastian, “whether it’s traveling to Europe to see a Taylor Swift concert or going to see friends in another part of the country – that’s what drives our stability.”
Delta stock was nearly 8% lower in pre-market trading on Thursday. Year to date, the airline operator’s stock is up more than 16%.
International flights and expansion
Despite higher travel speeds, ticket prices are falling, which could lead to lower margin growth for the airline industry.
Heading into the peak summer travel season, US airfares fell 5.9% in May compared to a year earlier.
One of the factors contributing to the low rates has been increased capacity. Another is the destination the passenger chooses to travel to.
An analysis from Bloomberg Intelligence forecasts that travel to Latin America and South America is expected to reach a post-pandemic peak in Q2 and Q3, with 30%-40% more travel to these destinations compared to 2019.
“This could put pressure on rates and profits,” Bloomberg Intelligence senior industry analyst George Ferguson wrote in a May report.
Delta has expanded the number of routes to and from Latin American, Caribbean, and South American markets. The Latin American segment was the core driver of the 4% revenue growth in international travel during the quarter as airline operators looked to fill gaps in the map.
“While the region … has been a little slow to recover from COVID over the past few years, it has recovered well,” Bastian said. “We are happy with that because we realize that it is a market (where) our market share opportunities are quite important for us, and we want to capitalize on them.”
“But it also reduces the price because, again, all the capacity is back and … (has) what is a price-sensitive consumer in that range,” added Bastian.
Days before reporting earnings, Delta announced another international partnership with Riyadh Air in its latest strategic expansion. The carriers will be mutually exclusive partners for customers traveling between North America, the Kingdom of Saudi Arabia, and connecting destinations.
“The first flight will start next summer,” Bastian said. “I had the opportunity to spend a few days in Riyadh a few months ago just to learn for myself and see what is happening on the ground. And it is quite amazing the amount of transformation in all aspects of that market … from the people to the huge investment of $800 billion in tourism in the Arabian peninsula The Saudis who were expelled from Riyadh.
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