Delta Q2 earnings miss expectations despite 'healthy' travel demand

Delta Air Lines (DAL) on Thursday reported record revenue during its June quarter, but discounted airfares pressured earnings, which fell below analyst expectations.

Here's how Delta performed in the second quarter versus consensus estimates compiled by Bloomberg:

  • Adjusted net income: $1.528 billion vs. $1.531 billion expected

  • Adjusted earnings per share: $2.36 vs. $2.38 expected

  • Revenue: $15.41 billion vs. $15.44 billion expected

Delta CEO Ed Bastian told Yahoo Finance that summer travel demand remained "very, very healthy," contributing to the company's second-highest earnings performance behind Q2 2023. However, he acknowledged that some consumers are becoming more price-sensitive.

"Our second quarter was really strong," Bastian said. "As we look into the third quarter we see another strong quarter. The domestic marketplace is where a little bit of the price sensitivity is starting to take hold, and it’s in the lower fare buckets."

The company reiterated its full-year earnings guidance of $6 to $7. For the third quarter, Delta expects earnings to be in a range of $1.70 to $2.00, below the $2.03 figure reported in the same quarter last year.

Meanwhile, air travel demand continues to hit new highs. According to TSA passenger throughput data, the number of people traveling by air in 2024 is outpacing 2023 by 6% — an average of 145,860 more customers per day.

"Our consumers are driving the experience economy," Bastian said, "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 driving a tremendous amount of our stability."

Delta stock was almost 8% lower in pre-market trading on Thursday. Year to date, shares of the airline operator are up more than 16%.

Airfare and international expansion

Despite the higher pace of travel, ticket prices are down, which could lead to a deceleration in margin growth for the airline industry.

Heading into the peak summer travel season, US airfare prices declined by 5.9% in May compared to a year prior.

One factor contributing to lower fares has been added capacity. Another is the destinations that passengers are opting to travel to.

Analysis from Bloomberg Intelligence forecast that travel to Latin and South America is expected to hit post-pandemic highs in Q2 and Q3, with 30%-40% more travel to these endpoints compared to 2019.

"That's likely to pressure fares and profit," Bloomberg Intelligence senior industry analyst George Ferguson wrote in a May report.

Delta has expanded the number of routes to and from the Latin American, Caribbean, and South American markets. Its Latin American segment was a core driver of the 4% revenue growth in international travel during the quarter as the airline operator looked to fill in gaps on its map.

"While that region has been ... a bit slow to recover from COVID over the last couple of years, it's been recovering quite well," Bastian said. "We're happy with that because we realize that those are markets [where] our market share opportunities are pretty important to us, and we want to capitalize on them."

"But it also drives pricing down as, again, all the capacity comes back and ... [has] what is certainly a price-sensitive consumer in that range," Bastian added.

Holiday travelers pass through Salt Lake City International Airport Wednesday, July 3, 2024, in Salt Lake City. (AP Photo/Rick Bowmer)

Holiday travelers pass through Salt Lake City International Airport on Wednesday, July 3, 2024, in Salt Lake City. (AP Photo/Rick Bowmer) (ASSOCIATED PRESS)

Days before reporting earnings, Delta announced another international partnership with Riyadh Air in its latest strategic expansion. The operators will be each other’s exclusive partners for customers traveling between North America, the Kingdom of Saudi Arabia, and connecting destinations.

"The first flights will be starting next summer," Bastian said. "I had the opportunity to spend several days in Riyadh a couple of months ago just to learn for myself and see what's happening on the ground. And it was quite amazing the amount of transformation in all aspects of that market ... from a people standpoint ... to a massive $800 billion investment in tourism across the the Saudi Arabian Arabian peninsula that's being driven out of Riyadh.”

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