Delta Air Line’s shares tumbled over 8% in pre-market trading on July 11, 2024, after its disappointing second quarter results.
The US carrier reported a GAAP net profit of $1.3bn, or $2.01 per share, for the second quarter, plummeting 29% from the same period last year. Delta’s adjusted earnings per share (EPS) of $2.36 fell short of TD Cowen and Bloomberg’s estimates of $2.40 and $2.38 respectively.
TD Cowen analysts Thomas Fitzgerald and Helane Becker said: “Oversupply in the domestic market and aggressive discounting look to be weighing on fares. While we had flagged this as a risk, we had viewed Delta as more immune to the impacts relative to peers.
“We expect shares to trade down and the peer group to trade down in sympathy.”
The US Department of Transport’s (DOT) Bureau of Transportation Statistics already noted that US airfares had dropped 5% in May from April, marking the fourth month in a row airfares had fallen.
“Excess supply has led to heavy discounting,” said Delta CEO Ed Bastian in an interview. “Like everyone, you get impacted.”
On the same day as the results were published, as of 9:40 GMT, American Airlines stock plunged over 7% and Southwest Airlines fell over 3%. Meanwhile, Alaska Air Group, JetBlue, and Spirit Airlines all fell over 4%.
Delta’s second quarter operating revenues were at a record $16.7bn – up 7% from the previous year – while its operating expenses climbed 10% to $14.3bn. Fuel expenses were up 12% to $2.8bn with an average of $2.64 per gallon. The airline’s cost per available seat mile (CASM) was up 2% to $2.8bn, with operating income down 9% compared to last year’s second quarter at $2.3bn.
Delta has seen a strong growth in demand for premium and corporate travel. Premium revenue grew 10% over the same period last year to $5.6bn. In contrast, its main cabin revenues were flat at $6.7bn for the quarter. In an earnings call, management said its premium select programme has “exceeded internal expectations, with load factors in the mid-to-high 80s”.
Delta added that corporate travel volumes had grown in “double-digits for six consecutive months”. It further noted “recent corporate survey results” indicated around 90% of companies expect their travel to increase or remain flat in the next quarter.
“The secular shift in consumer spends prioritise experiences aligns perfectly with Delta’s strategy and premium focus across our global network,” said Bastian in the earnings call.
Loyalty travel awards revenues were up 8% to $975 million and loyalty programme revenues were up 8% to $836 million.
Domestic revenues rose 5% to $9.4bn, while capacity was up 8%. Delta added that international passenger revenue was up 4% over 2023’s third quarter with demand across the transatlantic remaining “very strong” and is in line with last year’s record performance “excluding the impact from the summer Olympics in Paris.” In the earnings call, Delta said the impact is around $100 million.
Air France-KLM said earlier this month that tourists were being deterred from visiting Paris, adding that residents were also postponing summer trips until after games.
In addition, Delta told CNN in May that it there was an increased demand for European destinations as private jet-devotee pop star Taylor Swift travelled across the continent for her Eras tour. CNN added that Delta’s rival United reported demand for Milan and Munich routes boosted by the tour, with upwards of 45% increase in passengers compared to the previous year.
Furthermore, Bastian said in the earnings call that Japan has “turned into a US point of sale leisure market with the [Japanese] yen hitting at 160, so we have a record number of US tourists heading to Japan”. Delta later mentioned that corporate travel to Japan has also grown in strength.
The US airline also delivered a fresh cash flow of around $2.7bn, enabling it to increase its quarterly dividend by 50% beginning in the September quarter. The free cash flow also allowed it to repay $2.1bn of its debts. “Debt reduction remains our top financial priority and we are progressing toward investment grade ratings, with gross leverage improving to 2.8x at the end of the first half,” said Delta chief financial officer Dan Janki. At the end of the quarter, its total debt and finance lease obligations was $18.0bn.
Delta took delivery of 11 aircraft in the second quarter, having also taken delivery of seven aircraft in the previous quarter. The deliveries consisted of A321neo, A220-300 and A350-900 aircraft.
In the earnings call, Bastian said: “Airbus – like Boeing – continues to have certain delivery challenges, but obviously nowhere close to the challenges that Boeing has experienced, and as one of Airbus’ largest customers, Delta is somewhat insulated from that.
“We’re going to take largely the deliveries that we anticipated for the year. Yes, some may slip… but as long as we have pretty good notice of where the delays in delivery are coming, we’ll be just fine in 2025. I don’t anticipate us having any problems around the aircraft we’re going to need for the capacity we’d like to have.”
“As our international network and core hubs approach full restoration and we return to a normal cadence of retiring aircraft, Delta’s capacity growth is decelerating into the second half,” said Delta president Glen Hauenstein. “We expect September quarter capacity growth of 5-6% and revenue growth of 2-4%, with sequential improvement in unit revenue trends through the quarter.”
Delta’s third quarter revenues are anticipated to be up 2-4% over the same period last year at around $14.8-$15.1bn. Operating margins are expected to be between 11% and 13%. The airline’s EPS for the quarter is forecast to be between $1.70 and $2.00. Bastian noted that the past Sunday, June 7, was its “highest ever summer revenue day” for the third quarter. The airline expects sustained demand throughout the rest of the quarter.
Delta maintained its guidance for a full year EPS of around $6-$7 and a free cash flow of $3-$4bn. Its adjusted debt to EBITDAR is set to be between 2x and 3x.
Delta will host its investor day in New York in November.
Delta’s net profit plummet in second quarter, corporate travel on the rise
