Healthy corporate demand, lower fuel costs and a March quarter record of 45m passengers carried prompted Delta Air Lines to boost its revenue outlook for the period.
The upbeat outlook — which sent Delta shares more than 7 per cent higher and boosted those of its rivals — comes after a challenging time, as the US airline industry contended with the partial shutdown of the government and more recently the grounding of Boeing’s 737 Max jets amid safety concerns.
Delta, the second-biggest carrier in the US, said it expects to report growth in total unit revenue — a closely watched industry metric — of 2 per cent in the three months ended March 31, “as overall demand remains healthy, led by corporate volume”. That is an improvement from the flat to 2 per cent growth it guided to back in January.
The company also said it now expects top-line revenue growth of 7 per cent — nearly double the pace implied by the median forecast among Wall Street analysts — and a “record-setting operational performance” in the March quarter.
Non-fuel unit costs were expected to be flat to up 0.5 per cent, which would be a better outcome than the 1 per cent to 2 per cent previously pencilled in, while adjusted earnings are forecast to come in between 85 cents and 95 cents a share, versus the median estimate among analysts in a Refinitiv poll of 80 cents.
The revised outlook follows a shaky few months for the Atlanta-based company. It cut its fourth-quarter revenue target in early January. Then barely a fortnight later cut its March quarter outlook and warned the partial shutdown of the US government would weigh on revenue, to the tune of an estimated $25m a month, although it did highlight at the time corporate demand had been strong.
The all-time high number of passengers Delta carried for a March quarter was underpinned by a monthly record for March itself of 17.6m.
Shares were up 7.1 per cent in morning trade to an almost four-month high of $55.87. Rivals were also buoyed by Delta’s outlook, with United Continental up 3.9 per cent and American Airlines up 3.2 per cent.
Southwest Airlines was up a more modest 1.3 per cent. The carrier is one of the biggest users of the Boeing 737 Max 8 jet, which became subject to a global grounding in March following two fatal crashes in the space of five months. Analysts suggested concerned customers might switch to airlines like Delta that do not operate 737 Max 8 (or its variants) aircraft, and Southwest itself lowered its guidance late last month, primarily owing to the recent grounding.
Delta also renewed its contract for its co-branded credit card with American Express through 2029. It said it expected benefits from the partnership to hit nearly $7bn annually by 2023, from $3.4bn in 2018.
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April 02, 2019 at 11:29PM
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