Delta offers bullish second-quarter outlook on record travel demand

Delta Air Lines offered an upbeat outlook for the current quarter on Wednesday after its first-quarter earnings topped Wall Street estimates on buoyant travel demand, sending its shares nearly 5 per cent higher in premarket trading. The Atlanta-based carrier forecast an adjusted profit of $2.20 to $2.50 per share in the quarter through June, compared with analysts' expectation of $2.23 per share, according to LSEG data. It expects to post an operating margin of 14 per cent to 15 per cent, with a 5 per cent to  7 per cent year-on-year increase in second-quarter revenue. "We anticipate continued strong momentum for our business," CEO Ed Bastian said.

The company reaffirmed its forecast for a profit of $6 to $7 per share in 2024, with a free cash flow of $3 billion to $4 billion. Global travel demand is holding up. The International Air Transport Association (IATA) expects 4.7 billion people to travel in 2024, compared with 4.5 billion in 2019. In the United States, passenger traffic is estimated to reach an all-time high this year, according to trade group Airlines for America.

Airlines, however, are struggling with plane shortages, constraining their ability to supply more seats during peak travel periods, translating into stronger pricing. Delta reported a 6 per cent annual jump in revenue in the March quarter, helped by strong bookings for international trips and a pickup in travel spending by technology and financial services companies.
The company said it is continuing to see strong demand for travel in the June quarter. It expects its unit revenue - a proxy for pricing power - to be flat, compared with last year, in all geographies except Latin America.

It also reported an improvement in the U.S. market as its domestic unit revenue turned positive in the March quarter, with an improvement of 7 percentage points from a quarter ago.
Signs of softening demand on domestic routes had sparked a sell-off in airline shares last year as investors feared the travel boom was coming to an end. The improvement in a typically slow quarter for the industry should boost their confidence.

Delta's shares are up about 18 per cent this year. But the NYSE Arca Airline index, opens new tab is down 3 per cent, compared with a 9 per cent gain on the S&P 500, opens new tab this year.
Its non-fuel costs rose at a slower-than-expected pace, thanks to a strong operational performance in the March quarter. Delta expects a 2 per cent year-on-year increase in non-fuel costs in the current quarter. Adjusted profit for the first quarter came in at 45 cents a share, compared with analysts' expectation of 36 cents per share, according to LSEG data.