Delta missed on Q3 earnings, missed its own guidance by a wide margin, and cut the full-year outlook. But the market expected most of that, and the company remained upbeat about demand with a Q4 guide that’s better than consensus.
First, the numbers:
The bad news was this was Delta’s first earnings miss in two years but there was a built-in excuse with the rise in fuel prices. All the numbers flow downhill from that but none of it’s a surprise given where fuel prices are. The good news is that the Q4 and full-year guide are slightly better than expected, though that will certainly depend on what happens in Iran next.
Delta’s adjusted fuel price was $3.61 a gallon, up 60% y/y, and adjusted fuel expense rose 62% to $4.1 billion. Delta absorbed more than $500 million of fuel cost beyond what its early-July guidance had assumed.
Q4 assumes about $4.25 all-in, including a refinery benefit of roughly $0.40 a gallon. That’s another 18% above Q3. The CFO blamed the full-year cut entirely on jet fuel and said it averaged $4.50 as of Thursday evening. The guide is built on current prices, not on relief, so there’s no cushion if fuel spikes again. That compares to $4.40-$4.43 spot now (deduct the refinery credit afterwards).
For the economy (and Delta) the good news is that consumers appear willing to eat the higher fares. Delta passed essentially its entire cost increase on to customers, and operating income was flat at $1.66B vs $1.69B. The Q4 margin guide of 7–9% sits below Q3, so fares are still lagging fuel but shareholders will price in recovery later (and reverse torque on the way down if the war ever ends).
The pricing power is real. Yield was up 14% while load factor held at 86% on flat capacity. People are paying a lot more per mile and the planes are still full. The drivers are largely premium and corporate demand, which speaks to the K-shaped economy. The company said earlier this week that households earning $100,000 or more are 90% of its sales.
For Q4 is already about 60% booked at roughly 20% revenue growth, with seats growing under 2%. The question for the final quarter is the spend of the less-affluent traveler, who is more likely to fly around the holidays.
At the open, shares are down about 2.9% with the conference call still to come at 10 am ET, expect more color on Q4 demand there.
This article was written by Adam Button at investinglive.com.