Delta signals fare hikes will stay as resilient demand cushions fuel-cost hit

[CHICAGO] Delta Air Lines reaffirmed its full-year profit forecast and provided a stronger-than-expected third-quarter outlook on Friday (Jul 10), signalling confidence that recent fare gains can hold even as fuel prices ease from this year’s highs.

The forecast from the first major US carrier to report results offers an early read on travel demand beyond the summer season and on whether airlines can preserve fare increases pushed through during the spring fuel shock as costs moderate.

Delta chief financial officer Erik Snell said the carrier recovered about 60 per cent of the fuel cost increase in the second quarter, faster than it has historically, and it expected to recover more this quarter.

“Demand continues to be strong and there are no signs of weakness or shift in patterns in demand,” Snell told reporters. “We haven’t seen elasticity.”

Carriers raised fares this spring during a surge in jet fuel prices tied to the Iran war. Fuel has since retreated from its peak, but airline investors are watching whether lower costs lift profits or carriers add back too much capacity after summer and weaken pricing.

Delta forecast 2026 adjusted earnings of US$6.50 to US$7.50 per share, reaffirming the range it first issued in January after leaving it out of its April first-quarter release. The US$7 midpoint is about 17 per cent above the US$5.97 per share expected by analysts surveyed by LSEG.

Snell said fuel price volatility would be a major factor in whether Delta lands at the upper end of its range, while the airline expected revenue strength to continue through year-end.

The carrier forecast third-quarter adjusted earnings of US$2.00 to US$2.50 per share, compared with analysts’ average estimate of US$2.02. It expects mid-teen revenue growth and an operating margin of 11 per cent to 13 per cent.

Delta’s biggest rivals, United Airlines, American Airlines and Southwest Airlines, will report results later this month.

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Delta’s results suggest airlines are driving revenue growth through pricing rather than capacity expansion.

The airline reported revenue growth of nearly 14 per cent in the second quarter on only about 1 per cent capacity growth.

Passenger revenue per available seat mile – a measure of how much revenue Delta generates for each seat-mile of capacity – rose 11 per cent in the second quarter from a year earlier.

Snell said Delta’s third-quarter volume would be roughly flat to slightly higher from a year earlier, suggesting its revenue growth is being driven more by fares and passenger mix than by additional flying.

Premium revenue rose 17 per cent in the second quarter, but main-cabin ticket revenue also grew 8 per cent, supporting Delta’s view that demand remains strong beyond its highest-paying customers.

Analysts say the bigger test for airlines will come after the Labor Day holiday in September, when leisure travel typically softens.

They warn that fourth-quarter capacity plans remain the biggest risk to current fare strength. If too much flying returns at once, carriers could undercut the pricing gains they secured during the fuel shock.

Snell said the airline can adjust flying close-in if demand deteriorates, as it did in the second quarter. REUTERS