Key Points
- Delta warns of a fourth-quarter revenue hit due to election-related spending slowdowns.
- Despite this, Delta expects one of its most profitable fourth quarters thanks to strong holiday bookings.
- Delta’s stock and other major airlines saw declines due to election concerns.
- Capacity adjustments and falling jet fuel prices have boosted industry earnings.
Delta Air Lines (DAL.N) warned on Thursday of a potential revenue impact in the fourth quarter as consumers prioritize staying home around the upcoming U.S. presidential election, leading to reduced discretionary spending. Despite this, the airline said the current quarter will be one of its most profitable fourth quarters in history, driven by strong holiday bookings and improved pricing power.
The Atlanta-based carrier noted that the November 5 presidential election will reduce unit revenue by 1 percentage point in the December quarter. Some analysts indicated that the expected hit is worse than initially predicted. TD Cowen analyst Thomas Fitzgerald said, “The U.S. election turned out to be a larger headwind than most expected.”
Delta’s stock dropped about 1.4% to $50.13 during morning trading, with shares of rivals United Airlines (UAL.O), American Airlines (AAL.O), and Southwest Airlines (LUV.N) also seeing declines of 1% to 2%. Despite the short-term challenge, Delta anticipates an adjusted profit of $1.60 to $1.85 per share for the quarter, compared to analysts’ expectations of $1.70, according to LSEG data. Overall revenue is estimated to rise between 2% and 4% from last year, supported by a 3% to 4% increase in capacity.
Although Delta expects travel spending to slow temporarily due to the election, bookings for the holiday season remain robust. “It’s just a temporary pause for consumer activity,” CEO Ed Bastian told CNBC, adding that people prefer to be home during elections.
Delta also highlighted the benefit of U.S. airlines moderating capacity, which has helped strengthen pricing power across all regions. This trend is expected to continue through the December quarter. In the summer travel season, excess available seats led airlines to lower fares to fill planes, negatively affecting earnings. However, U.S. airlines have adjusted capacity since then, with domestic seat growth slowing to 1.5% in October and November, down from 5.5% in July, according to BofA analysts.
Lower jet fuel prices, which have dropped by 25% year-over-year in North America, have further boosted the industry’s earnings outlook. Since early August, the NYSE Arca Airline index (.XAL) has risen 25%, outperforming the 8% increase in the S&P 500 (.SPX). Delta’s shares have climbed by more than 30% during this period.
Delta reported an adjusted profit of $1.50 per share for the September quarter, slightly below the $1.52 analysts had expected. The shortfall was largely due to flight cancellations following a global cyber outage triggered by cybersecurity firm CrowdStrike (CRWD.O) software update, which affected Microsoft (MSFT.O) customers, including airlines. The disruptions cost Delta 45 cents per share in third-quarter profit.
