Rajesh Kumar Singh and Deborah Mary Sophia
CHICAGO (Reuters) – Delta Air Lines said on Wednesday it expects the highest second-quarter revenue in its history, thanks to buoyant demand for spring and summer travel and what the company called the “most supportive backdrop” for the airline industry.
The Atlanta-based airline is forecasting strong profit for the current quarter after reporting better-than-expected first-quarter revenue.
CEO Ed Bastian said Delta’s core customers are healthy and travel remains their top priority. He also highlighted increased spending on corporate travel, as well as airlines’ efforts to protect their pricing power in key markets.
“This is probably the most constructive backdrop I’ve seen in my airline career,” Bastian told analysts on a conference call.
Delta shares initially rose 4% before turning negative on Wednesday after hot inflation data weighed on the broader market. The stock, which is up about 17% this year, fell 0.3% to $47.16 in afternoon trading.
The International Air Transport Association (IATA) expects passenger numbers to reach 4.7 billion in 2024, up from 4.5 billion in 2019. Trade group Airlines for America (A4A) estimates U.S. passenger traffic will reach record levels this year. ).
Airline executives say consumers are cutting spending on products in favor of experiences in the wake of the pandemic. According to A4A, hybrid work arrangements are also allowing Americans to travel more, causing airfare costs to skyrocket.
Demand is especially strong for premium travel, benefiting carriers like Delta, which is trying to attract travelers willing to pay for more than just a seat.
“Generation shifts and changing consumer preferences are driving the continued growth of premium experiences,” Bastian said.
Consumer demand is soaring at a time when airlines are grappling with aircraft shortages that are limiting their ability to offer more seats during peak periods, leading to higher prices.
Delta expects unit revenue, a measure of pricing power, to remain flat year-over-year in all regions except Latin America.
The company also reported an improvement in the US market as its domestic revenue turned positive in the March quarter, up 7 percentage points from the previous quarter.
“Despite all the industry’s aircraft problems, demand is still strong and Delta’s guidance reflects that,” said Christopher Wright, senior analyst at Third Bridge.
While Delta’s operations have not been affected by the Boeing (NYSE:) safety crisis, the airline said industry-wide supply chain constraints are forcing it to continue flying older, less fuel-efficient planes and spending more money on repairs. Over the past two years, the company has not taken any aircraft out of service.
LSEG said adjusted earnings would be between $2.20 and $2.50 per share for the quarter through June, compared with analysts’ expectations of $2.23 per share. Operating margins are expected to be between 14% and 15%, with second-quarter revenue up 5% to 7% year over year.
Adjusted earnings for the first quarter were 45 cents per share, compared with analysts’ expectations of 36 cents per share.