Delta Air Lines (DAL) on Thursday slashed its full-year profit outlook due to surging fuel costs, but reported better-than-expected second-quarter earnings and raised its dividend. The carrier also said it would pare back its fall flight schedule to counter the higher fuel prices.
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Estimates: Earnings per share of $1.73, up 5%, according to Zacks Investment Research. Zacks forecasts revenue of $11.68 billion, an 8% gain. Delta expected a 4%-5% gain in unit revenue, amid solid demand from corporate and leisure travelers.
Results: Delta earnings climbed to $1.77 a share. Revenue was $11.8 billion. Total unit revenue excluding refinery sales increased 4.6%, led by strong demand and improving yields. Adjusted fuel expense increased 33% to $578 million.
Delta Air Lines also hiked its dividend by 15% to 35 cents a share.
Outlook: Citing a $2 billion increase in fuel costs, Delta cut its full-year EPS forecast to $5.35-$5.70, down from $6.35 to $6.70. Analysts had expected $5.70. Management also expects total unit revenue growth of 3.5%-5.5% for Q3.
"With strong revenue momentum, an improving cost trajectory, and a reduction of 50-100 bps of underperforming capacity from our fall schedule, we have positioned Delta to return to margin expansion by year end," said Delta Air Lines CEO Ed Bastian in a statement.
Stock: Shares rose modestly before the open in the stock market today, but fell 1.1% in morning trade. Legacy-carrier rival American Airlines (AAL), whose stock sold off hard on Wednesday, dipped 0.4%. United Airlines (UAL) was up 0.25%.
JetBlue (JBLU), which reported a higher load factor for June Thursday morning but also raised fuel cost estimates, sank 1.1%.
Schedule Adjustments?
Airline stocks have limped lower as higher fuel prices threaten to hack away at profits. The jump in fuel prices prompted Delta in June to cut its second-quarter earnings-per-share outlook.
The higher costs have led analysts to wonder how airlines might rebalance their flight schedules to shore up sales and profits. Airlines could potentially deploy flights to areas where it's more expensive to fly and pull them back elsewhere. The smaller supply of seats and flights could help airlines raise fares.
Delta in June said that over the next month it would decide how to handle that issue. The carrier said it would make that decision "through the lens of strong demand and volatile fuel."
Some analysts have been concerned that a trade war could temper companies' spending and, in turn, their plans to book flights for corporate travel.
American Airlines Hits Airline Stocks
American Airlines on Wednesday added to those worries. The carrier lowered its second-quarter unit revenue outlook on weaker domestic pricing power in the U.S., even as strong travel demand and higher oil prices increasingly allow airlines to pass higher costs onto consumers.
Unit revenue, an important efficiency metric that gauges airline revenue as it relates to flight capacity, has generally improved since last year. American's announcement left some analysts wondering if competition from Southwest Airlines (LUV) was to blame, and if American's demand relied on low fares.
Others downplayed American Airlines' forecast.
"Given investor commentary of American striking a cautious tone at recent meetings coupled with our fare checks indicating matching ULCC fares from American, we believe the weaker 2Q18 (unit revenue) outlook was somewhat anticipated," Raymond James analyst Savanthi Syth said in a research note on Wednesday.
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The post Delta Air Lines Will Cut Flights Amid Soaring Fuel Costs appeared first on Investor's Business Daily.
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