Delta Air Lines cuts profit forecast as surging fuel costs bite

Delta Air Lines has missed earnings expectations for the first time in two years and sharply downgraded its full-year profit forecast, blaming a massive surge in fuel prices driven by the US-Israeli war with Iran.

The Atlanta-based carrier now expects full-year adjusted earnings of $5.10 to $5.60 a share, down significantly from the $6.50 to $7.50 range it projected in July. Delta also slashed its free cash flow target for the year to $2.5 billion, down from a previous estimate of up to $4 billion.

Despite the lowered forecast, Delta executives insist that demand for air travel remains robust. Chief Executive Ed Bastian said that rising ticket fares have not yet deterred travellers, who continue to book flights across both domestic and international routes.

Fuel costs drag down earnings

The airline's third-quarter results lay bare the financial toll of rising oil prices. Delta's total fuel bill for the quarter reached $4.1 billion, a 62% increase compared to the same period last year. That was $500 million higher than the company had projected just three months ago.

For the three months ending September, Delta reported adjusted earnings of $1.72 per share, falling short of Wall Street expectations of $1.75 per share. Net income plummeted 47% to $756 million, down from $1.42 billion in the third quarter of last year.

Adjusted revenue rose nearly 16% to $17.59 billion, slightly missing analyst projections of $17.67 billion.

"All of it's fuel," Chief Financial Officer Erik Snell told reporters, explaining the downgrade in the company's full-year guidance. Snell added that the pressure from high fuel prices is expected to persist into the fourth quarter, though the airline plans to grow its flight capacity by 2%.

Premium demand remains a bright spot

While fuel bills squeezed profits, Delta's premium cabins and loyalty programmes helped cushion the blow. Premium revenue grew 18% during the quarter to $6.82 billion, outperforming main cabin sales, which rose 12% to $6.8 billion.

Delta's lucrative partnership with American Express also showed strength. Remuneration from the credit card co-brand agreement grew 15% during the quarter and is on track to bring in more than $9 billion for the full year.

Bastian noted that fares are ticking up as the airline works to pass on a $6 billion annual increase in fuel expenses. "The consumer response continues to be quite strong," Bastian said in an interview. "We're seeing it across all channels, all cabins of service, all geographies, business, leisure."

The airline is forecasting a 20% increase in revenue for the fourth quarter compared to the same period last year, helped in part by its oil refinery in Trainer, Pennsylvania, which gives Delta a unique hedge on jet fuel production compared to rivals.

However, competition is intensifying. Rivals like United Airlines and American Airlines are aiming to win over Delta's high-spending frequent flyers with status matches and new high-speed Starlink Wi-Fi offerings, targeting a key area where Delta has struggled with its own in-flight connectivity rollout.