Delta Air Lines disclosed that a moderated rate of capacity growth is expected to bolster revenue acceleration in the fourth quarter. The airline previously experienced an increase in excess capacity, necessitating fare discounts to fill seats and negatively affecting revenue. In the third quarter, this excess capacity grew at a rate of 4%, a notable decrease from the 8% observed in the second quarter.
Domestic capacity has particularly helped with a decreased growth of 3%. Delta anticipates overall capacity growth to be between 3% and 4% in the fourth quarter, leading to an anticipated revenue growth of 2% to 4%. JPMorgan analyst Jamie Baker noted in a report to clients that 'domestic capacity, based on filed schedules through the weekend, now stands at 1.8%', marking a decline from a previously expected increase of over 4% in the fourth quarter.
Baker emphasized that this situation represents one of the most constrained domestic outlooks in peacetime that he can recall. Delta's executives project further revenue benefits from lower capacity levels as we head into early 2025, particularly through improvements from domestic and various other business sectors.
Delta President Glen Hauenstein commented on a call with analysts on Thursday, stating, 'Domestic [revenue] is going to be quite strong based on the capacity levels we are leaving the year with, and I think trans-Atlantic will follow closely behind.' He also mentioned that the airline is adjusting to certain capacity additions made in the Pacific region this year, which will yield better results in the coming year. However, there are concerns that reduced travel demand surrounding the US elections in November will counterbalance the revenue boost from diminished capacity growth.
Delta expects the upcoming elections to exert a one-point impact on unit revenue, as it is common for domestic travel volumes to dip around election periods in the US, as noted by Hauenstein. Hauenstein explained, 'We highlighted that the underperformance is not just limited to domestic travel, but also affects short-haul Latin routes.
It appears that, in general, those two weeks surrounding the election are lagging behind the positive trends observed before and after.' Delta's implied revenue per seat mile reflects a 0.48% decrease from the previous year, diverging from analysts’ expectations of a 0.4% increase. Furthermore, the airline indicated that they are forecasting an 8% decline in fuel prices and a 1% headwind due to the elections, indicating that the revenue outlook 'isn't completely clean,' according to Bernstein analyst David Vernon.
In its report on Thursday, Delta reported adjusted earnings of $1.50 per diluted share for the third quarter, down from $2.03 the previous year and below the Capital IQ consensus analyst estimate of $1.53. Revenue for the quarter rose to $15.68 billion compared to $15.49 billion, exceeding the consensus estimate of $15.29 billion. The impact of a global tech outage in July, resulting from an update deployed by CrowdStrike on Microsoft Windows systems, had a direct revenue effect of $380 million in the third quarter and lowered earnings by $0.45 per share, according to Delta. For the fourth quarter, the airline has guided adjusted earnings per share to be between $1.60 to $1.85, with the guidance midpoint below the Capital IQ consensus estimate of $1.76.
After the earnings release, Delta's shares fell before recovering some losses. Vernon commented, 'Street may take issue with a guidance range that is at best in line on lower than expected fuel, but the initial market reaction of down 5.6% seems excessive.' Price: 50.71, Change: +0.42, Percent Change: +0.83.