Delta Air Lines has joined other U.S. carriers in cutting its third-quarter guidance due to increased fuel costs. Despite this news, the company’s shares have only experienced a small decrease in Thursday trading.
Factors at Play
There are several reasons contributing to this development. Firstly, American Airlines Group (AAL) announced a significant outlook reduction on Wednesday, which caused investors to worry about the overall state of the sector’s major players. As a result, Delta’s stock fell by 2.8% during Wednesday’s session.
Secondly, when compared to American Airlines’ revised guidance, Delta’s update doesn’t look as bad. Delta now anticipates adjusted earnings per share to range from $1.85 to $2.05 in the third quarter. This is a downgrade from the previous range of $2.20 to $2.50. While this represents a 40-cents reduction in midpoint guidance, American Airlines’ downgrade was 65 cents, with 23 cents attributed to a new pilot pay deal.
Positives Amidst the Downturn
In an unusual twist for the sector, Delta’s update also includes some positive news. The carrier expects third-quarter revenue to fall within the “upper half” of its forecasted growth range of 11% to 14% year over year. Additionally, the total revenue per available seat mile (TRASM) is now only projected to drop by 2% to 3%, an improvement over the previous forecast of a 2% to 4% decline.
American Airlines, on the other hand, expects a more substantial decrease of 5.5% to 6.5% in TRASM, compared to their previous range of a 4.5% to 6.5% decline. The recent revenue guidance cut by Spirit Airlines (SAVE) further adds to the sector’s challenges.
Maintaining Full-Year Earnings Guidance
Despite the current hardships faced by the airline industry, Delta has maintained its full-year earnings guidance of $6 to $7 per share.
Tough Times for Airline Stocks
Airline stocks have had a difficult few months as initial investor excitement surrounding the surge in summer travel demand has been replaced by concerns over a slowdown and rising fuel prices. The U.S. Global Jets exchange-traded fund (JETS), which tracks the performance of airline stocks, has fallen by 19% since reaching its peak in July. Furthermore, the ETF has experienced declines in nine out of the past ten trading sessions, including Wednesday.
Given the guidance cuts made by other airlines and the ongoing battle with higher fuel costs, investors were likely anticipating Delta’s announcement. However, despite the downgrade, the updated forecast may come as a relief to many.