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Delta Air Lines on Thursday reported stronger-than-expected quarterly profit on strong international travel, but trimmed its full-year outlook due to higher fuel costs.
The strong quarter comes against the backdrop of softening domestic demand leading to doubts that consumers are cutting back on travel spending amid the depletion of household savings, the resumption of student loan repayments and high interest rates.
Delta CEO Ed Bastian cautioned against interpreting that as a broader industry trend. In an interview, he said the demand for Delta's products remain "high" as its customers are in "a very healthy condition."
"Our domestic business is very strong," he said. Shares of the U.S. carrier rose 2.4% before the bell.
A jump in fuel costs, however, is pressuring the company's profits. Delta now expects adjusted earnings of $6 to $6.25 per share this year, compared with $6 to $7 per share estimated in July. The company reported an adjusted profit of $2.03 per share for the third quarter, above analysts expectations of $1.95, according to LSEG data, helped by a 35% rise in international passenger revenue from a year ago.
Delta said the demand for overseas trips has remained strong through the autumn season.
In the December quarter, the airline expects adjusted earnings in the range of $1.05 to $1.30 per share. That compares with the $1.11 estimated by Wall Street analysts.
It forecast an adjusted operating margin of 9% to 11% in the fourth quarter, with a 9% to 12% year-on-year increase in revenue.
A rush among travelers to make up for lost time during the pandemic has allowed U.S. carriers to mitigate inflationary pressures with higher fares.
Airline fares, however, have been posting a double-digit decline from a year ago. Ticket prices for holiday travel are also down.
Data from online travel agency Hopper show the average domestic round-trip airfare for the Thanksgiving holiday next month is down 14% from last year. Similarly, fares for the Christmas travel season are 12% lower than a year ago.
Ultra-low-cost carrier Spirit Airlines last month cut its profit outlook for the third quarter, citing "heightened promotional activity with steep discounting." Frontier Airlines said it was facing pressure to offer "very, very low" fares to fill up its planes.
In contrast, Delta said demand for premium cabins continued to outpace that for low-fare basic economy seats, which now make up less than 5% of its seats.
"At the lower end of the price category, there is some pressure," Bastian said. "That's something for someone else to figure out."
(Reporting by Rajesh Kumar Singh and Mehr Bedi; Editing by Jamie Freed and Arun Koyyur)