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Airline Stocks Face Turbulence After Delta Posts Weak Q3 Guidance
Delta Air Lines reported mixed second-quarter results and a disappointing third-quarter forecast, triggering a broad selloff in airline stocks.
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Delta Air Lines (NYSE: DAL) reported mixed second-quarter results and a disappointing third-quarter forecast on Thursday, sending shockwaves through the airline industry. The news comes as U.S. carriers grapple with excess capacity and pricing pressures, leading to a broad selloff in airline stocks.
Delta’s Third-Quarter Forecast Fell Short of Wall Street Estimates
Delta Air Lines posted record second-quarter operating revenue of $16.7 billion, with adjusted operating revenue reaching $15.4 billion, slightly below analyst expectations of $15.47 billion.
The company’s adjusted earnings per share of $2.36 met expectations, while operating income stood at $2.3 billion with a 14.7% operating margin. Delta also reported strong cash flow, with $2.5 billion from operations and $1.3 billion in free cash flow.
However, Delta’s third-quarter forecast fell short of Wall Street estimates. The airline projects earnings per share between $1.70 and $2.00, below analyst expectations of $2.05. Revenue growth is anticipated to be 5% to 7% year-over-year, with an operating margin forecast of 11% to 13%.
The company cited several factors for the lower outlook, including discounting pressure in the low-end market, reduced transatlantic bookings due to travelers avoiding Paris during the Olympic Games, and increased non-fuel operating costs from moderated capacity growth.
Airline Stocks Face Turbulence After Delta’s Q2 Results
The disappointing forecast from Delta triggered a broader selloff in airline stocks. As of 11:00 AM EDT on July 11, 2024, Delta shares were down 2.82% to $46.86.
United Airlines (NASDAQ: UAH) saw a more significant drop of 16.07% to $47.15, while American Airlines (NASDAQ: AAL) plummeted 40.69% to $11.15. Southwest Airlines (NYSE: LUV) also experienced a substantial decline, falling 27.80% to $27.63.
Other carriers were not immune to the industry-wide turbulence. Spirit Airlines (NYSE: SAVE) and Frontier Group Holdings (NASDAQ: ULCC) have seen year-to-date declines of 83.33% and 60.13%, respectively. JetBlue Airways (NASDAQ: JBLU) is down 36.73% for the year. In contrast, SkyWest (NASDAQ: SKYW) has been a rare bright spot, posting a year-to-date gain of 100.60%.
The airline industry is facing significant headwinds, with excess capacity undermining pricing power. Domestic seat capacity is up 6% year-over-year, while average round-trip ticket prices in May were down 3% compared to the previous year.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.s
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
