Delta Airlines fails to turn a profit due to higher fuel costs spoiling the strong outlook

CHICAGO (Reuters) – Delta Airlines (DAL.N) on Thursday projected higher-than-expected profit for the current quarter citing “record” bookings for summer travel, even as the airline missed its due first-quarter profit estimates. to higher fuel and labor costs.

Shares of the carrier initially rose about 4%, but fell as much as 3% in morning trade as investors parsed the results for signs about demand risks from rising costs. Shares of American Airlines and United Airlines fell about 1%.

Delta CEO Ed Bastian said in an interview with Reuters that volatile fuel prices and bad weather affected the company’s performance in the first quarter.

American Airlines Inc (AAL.O) on Wednesday expected first-quarter profit to fall short of market expectations, joining rival United Airlines (UAL.O) in signaling a hit from rising costs.

US airlines have tried to take advantage of travel demand by raising ticket prices to offset higher labor and fuel bills. But investors fear that any decline in travel spending will hurt airlines’ profits.

However, Bastian remains bullish on consumer demand despite the rising risks of a recession. The airline is actually doubling down on more profitable premium travel, after premium cabin revenue grew faster than prime cabin in the first quarter.

“Consumers are eager to travel,” Bastian said, adding that demand for international travel has been particularly strong this summer, and travelers have been booking flights early.

“The second quarter setup looks solid, featuring key international corridors driving unit revenue growth, and continued strong results from co-branded (Delta) Card,” said Citi analyst Stephen Trent.

Demand for travel in the US is currently strong, but rising interest rates, ever-high inflation, mounting job losses, and turmoil in the banking industry have weighed on consumer spending.

Bastian played down these concerns. He said Delta recorded the 10 highest sales days in its history last month and was able to protect its pricing power despite the capacity increase.

However, the company’s earnings in the January-March quarter were lower than Wall Street estimates.

For the June quarter, Delta expects its revenue to increase 15% to 17% from the prior year as a result of capacity growth of 17%.

“We’re oversupplying at that level and we’re not seeing a deterioration in total revenue,” Bastien said. “It is very unusual in our industry.”

Delta expects adjusted earnings of $2.00 to $2.25 per share in the second quarter, with an operating margin of 14% to 16%. In contrast, analysts estimated a profit of $1.66 per share.

Non-fuel costs for the quarter are expected to increase between 1% and 3% year over year. Delta pilots last month approved a new contract that includes more than $7 billion in cumulative pay and benefits increases over four years, and is widely expected to be a benchmark for contract negotiations at rival airlines.

Delta maintained its full-year earnings forecast after reporting first-quarter adjusted earnings of 25 cents a share, compared to the average analyst estimate of 30 cents.

(Reporting by Rajesh Kumar Singh). Editing by Jimmy Fareed and Chingini Ganguly

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