Delta Signals Trouble Despite Healthy Travel Demand And Record Traffic – Delta Air Lines (NYSE:DAL)

Delta Airlines Inc DAL reported record revenue with air travel demand being at record highs, but profits couldn’t keep up the pace due to discounted airfares, falling 30%. 

Delta CEO CEO Ed Bastian spoke to Yahoo Finance, stating that summer travel demand continued the strong momentum, contributing to the airline’s second-highest earnings performance after 2023’s comparable quarter, despite some consumers becoming more price-sensitive.

A strong second quarter but still short of Wall Street estimates.

For the quarter ended on June 30th, Delta Airlines reported its revenue rose 5.4% to $15.41 billion, coming short of both Bloomberg’s estimate of $15.44 billion and LSEG’s $15.45 billion estimate. Net income tanked nearly 30% YoY to $1.31 billion as operating expenses went up 10% YoY. Adjusted for one-time items, net income amounted to $1.528 billion, also below Bloomberg’s estimate of $1.531 billion. Adjusted earnings per share amounted to $2.36, below the expected $2.38.

Reitairated Guidance

For the current third quarter, Delta guided for earnings between $1.70 and $2.00, short of $2.05 a share analysts estimated with sales rising 4% at best, which was also below LSEG’s  5.8% growth estimate. During the quarter, Delta expects to grow its flying capacity from 5% to 6% which is a slowdown compared to second quarter’s 8%. 

For the full year, Delta reiterated its full-year earnings guidance range from $6 to $7. 

Delta’s passengers are driving the experience economy. 

Air travel demand continues to reach new heights as the TSA passenger throughput data, reported that the number of people traveling by air so far this year has outpaced 2023 by 6% which translates to  an average of 145,860 more passengers per day.

Delta positioned itself as the luxury and most profitable U.S. carrier, but its rival United Airlines UAL is investing heavily to catch up. United Airlines is scheduled to report results next Wednesday. Both United Airlines and Delta have been racing to add more premium seats to boost their top and bottom line. Delta’s strategy to focus on high-end offerings has been paying off as customers have been more willing to splurge on on perks like lounge access and plane seating. Loyalty program and premium ticket sales now make more than half of Delta’s revenue, with sales of premium tickets growing more quickly than of standard ones.

Delta reported growth in premium tickets whose sales rose 10% to $5.6 billion, while revenue from coach tickets rose only 0.3% to about $6.7 billion. Its lucrative American Express Company AXP credit card deal brought in $1.9 billion, having grown 9% YoY.

Delta is expecting another strong quarter

Delta has officially kicked off the airline earnings season. In a nutshell, its report reflects packed planes and record traffic but also squeezed profits due to higher costs and discounted fares. Delta’s report is a sign that competitors, particularly those focused on the oversupplied U.S. air travel market like United Airlines, could be in for a struggle this summer. Considering that Delta wasn’t immune, domestic market challenges are also expected to weigh down on other carriers.

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