Delta Air Lines cuts profit view on supply chain, economic risks; shares fall

By Rajesh Kumar Singh

CHICAGO (Reuters) -Delta Air Lines on Friday scaled down its profit outlook for the current year, citing supply chain issues and macroeconomic uncertainties, sending its shares down about 6.2% in morning trade.

The outlook cut weighed on other airline stocks, with United Airlines and American Airlines down about 6%. Southwest Airlines fell 3.2%.

Strong holiday demand, however, helped Delta beat Wall Street estimates for fourth-quarter earnings.

The Atlanta-based carrier now expects an adjusted per-share profit of $6 to $7 this year, compared with its previous target of more than $7 outlined at an investor day in December 2022.

The 2024 estimate compares with analysts’ expectations of $6.50, according to LSEG data.

In an interview, Delta CEO Ed Bastian said the company still had an internal goal of producing earnings of more than $7 a share, but it was offering an outlook to the market that it had “a good deal of confidence in.”

“With the amount of uncertainty that continues to exist within the supply chain, in the maintenance arena, within the economic outlook, we wanted to be prudent,” Bastian told Reuters. “But that doesn’t mean we can’t out-produce it.”

For the first quarter, the company forecast an adjusted profit of $0.25 to $0.50 per share, compared with market estimates of $0.38 a share.

“All else equal, we would view any (Delta Air) stock price dips as enhanced buying opportunities in the shares,” Citi analyst Stephen Trent said in a note.

Trent backed his “buy” rating on the carrier’s stock citing potential for continued multi-billion dollar free cash flow generation, earnings growth and a dividend payout.

Airlines are still grappling with supply-chain problems that have impacted aircraft deliveries and forced them to fly older planes longer than expected, driving up maintenance and repair costs. Delta’s aircraft maintenance costs were up 23% last year from the previous year.

Bastian said maintenance expenses will remain higher until issues such as labor shortages, quality control and inflation ease.

“It’s going to be a multi-year period of time before the overall level of maintenance support and efficiency gets back to pre-pandemic levels,” he said.

There also have been lingering concerns about travel spending as rising costs of living stretch household budgets.

Bastian, however, said the company continued to see strong demand in all markets, adding the airline marked record bookings this week.

While demand for transatlantic travel is expected to cool down from a year ago, it will likely remain healthy, he said.

Transatlantic travel is the U.S. airline industry’s most lucrative long-haul market. It accounted for about 19% of Delta’s passenger revenue last year.

The company also announced a deal with Airbus to buy 20 A350-1000 widebody aircraft for deliveries beginning in 2026, with options for 20 additional jets, confirming a Reuters story.

Adjusted profit for the fourth quarter came in at $1.28 per share, beating expectations of $1.17.

(Reporting by Rajesh Kumar Singh, Additional reporting by Shivansh Tiwary; Editing by Jamie Freed and Devika Syamnath)