Delta forecasts fourth-quarter revenue below estimates, shares fall

By Rajesh Kumar Singh

CHICAGO (Reuters) – Delta Air Lines (NYSE:DAL) on Thursday said the current quarter is shaping up to be one of the most profitable fourth quarters in its history, thanks to improved pricing power as well as strong holiday travel bookings.

The Atlanta-based carrier, however, said the upcoming U.S. presidential election was expected to temporarily slow travel spending, hurting its revenue.

Delta forecast an adjusted profit of $1.60 to $1.85 per share in the quarter through December, compared with analysts expectations of $1.71 per share, according to LSEG data.

“With an improving industry backdrop and strong demand for travel on Delta, we are positioned to finish the year strong,” CEO Ed Bastian said.

Delta said the measures taken by U.S. airlines to moderate capacity improved its pricing power across all geographies in the third quarter. It expects the trend to continue in the December quarter.

An excess supply of airline seats in the domestic market during the summer travel season had forced carriers to discount fares to fill their planes, hurting their earnings.

U.S. airlines have moderated capacity since then. Annual domestic seat growth has slowed to 1.5% in October and November from 5.5% in July, according to analysts at BofA.

Capacity adjustments as well as a 25% year-on-year decline in jet fuel prices in North America have bolstered the industry’s earnings outlook, driving up airline shares.

The NYSE Arca Airline index is up 25% since early August, outpacing an 8% jump in the S&P 500 index. Delta’s shares have also gained 34%.

The U.S. carrier expects the Nov. 5 presidential election to shave 1 percentage point from its unit revenue in the December quarter. Its overall revenue is estimated to be up 2% to 4% in the quarter from a year ago on the back of a 3% to 4% increase in capacity.

Delta reported an adjusted profit of $1.50 per share in the September quarter, lower than the $1.52 estimated by analysts. Its earnings in the third quarter suffered due to mass flight cancellations following a global cyber outage.

A software update in July by global cybersecurity firm CrowdStrike (NASDAQ:CRWD) triggered system problems for Microsoft (NASDAQ:MSFT) customers, including many airlines. The disruptions persisted at Delta even as they subsided the next day at other major U.S. airlines.

Delta canceled about 7,000 flights over five days, disrupting the travel plans of 1.3 million customers. On Thursday, the company said the disruptions led to a 45 cents per share hit to its third-quarter earnings.