ATLANTA: Delta Air Lines Inc cut its profit expectations for the first quarter roughly by half on weakening travel demand, the latest sign that economic worries are pressuring consumer spending.
Earnings will be 30 US cents to 50 US cents a share in the period, down from an earlier forecast of as much as US$1, the carrier said Monday in a statement.
Delta also lowered its guidance for revenue growth to reflect a US$500mil reduction and for operating margin.
The diminished outlook marks a sharp reversal from the start of the year, when Delta chief executive officer Ed Bastian trumpeted a steady demand environment.
The carrier on Monday cited economic volatility and concerns over flight safety that have weighed on the US industry in recent weeks.
Delta’s shares fell 11% in post-market trading as of 6.48pm in New York, dragging down shares of United Airlines Holdings Inc, American Airlines Group Inc and Southwest Airlines Co.
That was after Delta’s stock ended regular trading Monday down about 17% this year.
The airline had been expected to trim its guidance, “but the magnitude is more severe” than expected, Jefferies analyst Sheila Kahyaoglu said in a note.
Delta and other US airlines are set to present at a JPMorgan conference in New York yesterday, which analysts have said could bring additional outlook cuts.
The fatal collision involving an American Airlines plane on Jan 29 and the crash landing of a Delta regional jet about two weeks later have led some consumers to question air travel, Bastian said in an interview with CNBC Monday.
“These events somewhat exacerbated the impact on us,” he said.
“It’s not just corporate and consumer, but it was also a question about safety in our industry. We do know it’s safe to fly.”
About half of Delta’s US$500mil revenue dip is likely transitory heading into the second quarter, Bastian said.
The carrier now sees revenue rising no more than 4% from a year ago, compared with its earlier outlook for as much as a 9% jump.
Delta didn’t change its full-year outlook, mainly on a decline in prices for oil that’s refined into jet fuel.
The airline pointed to a “recent reduction in consumer and corporate confidence caused by increased macro uncertainty, driving softness in domestic demand”.
The premium and international segments remain in line with prior expectations, Delta said.
The outlook cut is a shift from the upbeat tone on the company’s last earnings report, when the stock jumped the most in four years.
“The supply-demand balance is as good as I can ever recall it being as we look into 2025,” Bastian said in January in an interview after the company reported earnings that beat analysts’ estimates.
“We have pretty good visibility through the first quarter and into the spring.”
The aerospace and defence, automobile, media, entertainment and technology industries have pulled down corporate travel, Bastian said in the CNBC interview, followed by a slump in consumer bookings.
“We really do believe this is a domestic issue,” he said.
“We’ll find out, of course, as the weeks go and policies start to get decided upon.”
Demand in the domestic market also has been affected by winter storms and reduced government travel amid widespread job cuts.
It is contributing to a developing economic “soft patch” that has increased consumer uncertainty and may affect decisions on discretionary spending, according to a recent Deutsche Bank report. — Bloomberg
