Delta Air Lines (DAL) on Thursday cut its fourth-quarter revenue forecast and said it wasn't able to charge as much for some flights as it expected last month. Delta Air Lines stock plunged to a 15-month low. Other airline stocks, including United Airlines (UAL) and American Airlines (AAL), also tumbled.
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The more cautious guidance comes after Delta Air warned in December that it expected a "slight deceleration in global GDP" this year, potentially threatening profits and travel demand.
Delta Air Lines now expects a roughly 3% increase in total unit revenue, down from the 3.5% gain it predicted early last month. That dimmer December outlook is down from expectations for a 3%-5% Q4 gain offered in October. Unit revenue measures sales in relation to a carrier's total flight capacity.
Also Thursday, Delta Air Lines trimmed its expectations for overall Q4 revenue growth to around 7%, down from a roughly 7.5% forecast in December.
The carrier said it expects fourth-quarter earnings per share of $1.25-$1.30. That forecast is at the high end of initial guidance the company gave in October.
"The overall demand environment remains healthy with strength in both business and leisure segments throughout the quarter," Delta said in a statement. "While close-in yield momentum continues, the pace of improvement in late December was more modest than anticipated."
Close-in yields refers to money made on flights booked close to their departure time. Yield is a measure of how much an airline earns for each occupied seat flown one mile.
"Given when Christmas fell this year there was some hope business travel would stay strong through December 21, and that appears not to have happened for Delta," Cowen & Co. analyst Helane Becker said in a research note on Thursday.
Delta Air Lines Stock, Other Airline Stocks Sink
Delta Air Lines stock tumbled 8.9% to 45.61 in the stock market today, falling to its lowest level since September 2017. On Nov. 30, Delta stock hit a 19-year high of 61.32. Rival network carriers American Airlines and United Airlines slid 7.45% and 5%, respectively.
Among other airline stocks, Southwest Airlines (LUV) fell 3.25%. JetBlue (JBLU) gave up 1.7%.
Highly-rated ultra-low-cost carrier Spirit Airlines (SAVE) darted 6.7% lower. The drop in Spirit Airlines stock put shares of the carrier below their 50-day line. Spirit Airlines stock had gapped higher in late November after the low-fare, high-fee carrier gave bullish guidance.
Airline stocks also tumbled when Delta Air cut its unit revenue outlook last month. Delta Air Lines stock and other airline stocks have been hit by higher jet fuel costs. However, those costs have fallen as crude oil prices plunged in late 2018.
Jet Fuel Costs Fall
Delta Air Lines on Thursday it jet fuel price per gallon for the fourth quarter likely was $2.38-$2.43. That forecast, the company said, was around 10 cents below its initial outlook. Delta also said it expects fourth-quarter non-fuel unit costs to fall around 0.5%, a result of cost containment actions and changes to its aircraft fleet.
Lower fuel costs pad airlines' profits. But higher profits also free up space to compete, often by trying to out-discount rivals on airfares.
"In the past, the airlines have competed away gains from lower fuel as they reward customers with lower fares," Becker said. "With oil trending lower in recent months, investors are worried this time will not be different."
She said this year should remain "positive" for Delta, with growth driven by "revenue streams unrelated to economy fares."
Delta last month touted its efforts to put "less reliance" on its main cabin seats. The carrier said last month that drawing sales from a more diverse range of sources, particularly premium fare offerings, would help it navigate a potential slowdown in the economy. At that time, Delta said it expected 48% of its revenue would come from the main cabin.
Delta Air Lines December Results
Delta passenger traffic rose 5.4% in December, on a matching 5.4% capacity increase. Load factor, a measure of seats filled, was flat.
Traffic for trans-Pacific flights was flat in December and down 1.8% during the year. Passenger traffic in Delta's Latin American business also finished the year 1.7% lower.
China Travel Advisory
Also Thursday, the State Department issued a travel advisory recommending "increased caution" on travel to China, citing authorities' use of "exit bans" that prohibit U.S. citizens from leaving the nation. The move follows increased trade and political tensions between the U.S. and China, something else weighing on markets more broadly.
The State Department warned that China uses exit bans to "compel U.S. citizens to participate in Chinese government investigations," lure people back to China, and provide other assistance to authorities. U.S. citizens can be kept in China "for years," as a result of the exit bans, the department said.
"In most cases," the department said, "U.S. citizens only become aware of the exit ban when they attempt to depart China, and there is no method to find out how long the ban may continue. U.S. citizens under exit bans have been harassed and threatened."
United Airlines' international business banks more heavily on Asia than its major-carrier rivals.
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The post Delta Air Lines Cuts Key Forecast For 2nd Time In A Month; Airline Stocks Dive appeared first on Investor's Business Daily.
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