Equities

Delta Q2 Revenue Hits $15.4B, Shares Fall Amid Concerns

Delta's Q2 revenue hits $15.4B, but shares drop 8% as earnings miss expectations and domestic oversupply concerns persist.

By Barry Stearns

7/11, 09:44 EDT
American Airlines Group, Inc.
Alaska Air Group, Inc.
Delta Air Lines, Inc.
U.S. Global Jets ETF
Southwest Airlines Company
United Airlines Holdings, Inc.

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Key Takeaway

  • Delta Air Lines reported record Q2 revenue of $15.4 billion, driven by strong transatlantic travel, including Taylor Swift concert-goers.
  • Despite the revenue boost, Delta's shares fell 8% pre-market due to lower-than-expected EPS forecasts and concerns over domestic flight oversupply.
  • Delta's load factor slipped to 87%, missing expectations; however, cargo revenue exceeded estimates with a 15.7% increase to $199 million.

Record Revenue Driven by Transatlantic Travel

Delta Air Lines reported record revenue levels in the second quarter, driven by strong transatlantic travel. The airline's adjusted revenue reached $15.4 billion for the three months ending in June. CEO Ed Bastian highlighted that transatlantic travel outperformed domestic travel, attributing this to several factors, including the strong dollar and a continued appetite for travel post-pandemic. Bastian noted that some young U.S. travelers were flying to Europe to attend Taylor Swift concerts, where tickets were generally cheaper than in the U.S. "Transatlantic is going really well," Bastian said. "I think it is the desire after years of people feeling cooped up and not able to experience the world. We see it across all demographics."

Despite the strong performance in transatlantic travel, tourists are avoiding Paris due to the upcoming Olympic Games. Data from aviation analytics company Cirium indicates that carriers, including European operators, plan to fly 7.8% more seats across the Atlantic in July compared to the previous year. However, the oversupply of seats, particularly for U.S. domestic flights, remains a concern for investors.

Earnings Miss and Stock Decline

Delta's shares fell 8% in pre-market trading following the release of its second-quarter results. The airline's adjusted earnings per share (EPS) for the third quarter were forecasted to be between $1.70 and $2, falling short of analysts' expectations. This led to a broader decline in airline stocks, with United Airlines, American Airlines, Alaska Air, and Southwest Airlines all experiencing drops. "Oversupply in the domestic market and aggressive discounting look to be weighing on fares," said analysts at TD Cowen.

Delta's adjusted operating income dropped 9% to $2.3 billion compared to the second quarter of 2023. Net income fell to $1.31 billion, or $2.01 per share, from $1.83 billion, or $2.84 per share, in the same period a year ago. Excluding nonrecurring items, adjusted EPS was $2.36, slightly below the FactSet consensus of $2.37. Total operating revenue grew 6.9% to $16.66 billion, while adjusted operating revenue rose 5.4% to $15.41 billion, just below the analyst consensus of $15.45 billion.

Load Factor and Future Outlook

Delta's load factor slipped one percentage point to 87%, below expectations of 87.9%, as traffic increased by 7% and capacity was up by 8%. Passenger revenue rose 4.8% to $13.84 billion, missing expectations of $13.94 billion, while cargo revenue jumped 15.7% to $199 million, beating expectations of $166.7 million. Other revenue rose 18.9% to $2.62 billion, surpassing the FactSet consensus of $1.69 billion.

Looking ahead, Delta expects third-quarter revenue growth of 2% to 4%, while the current FactSet revenue consensus of $15.36 billion implies growth of 5.6%. For the full year, the company reiterated its guidance for EPS of $6 to $7 and for free cash flow of $3 billion to $4 billion. Despite the recent stock decline, Delta's stock has climbed 16.5% year-to-date through Wednesday, while the U.S. Global Jets ETF has edged up 1.5% and the S&P 500 has rallied 18.1%.

Street Views

  • TD Cowen Analysts (Bearish on US domestic flights):

    "Oversupply in the domestic market and aggressive discounting look to be weighing on fares."

Management Quotes

  • Ed Bastian, CEO of Delta Air Lines:

    "Transatlantic is going really well. I think it is the desire after years of people feeling cooped up and not able to experience the world. We see it across all demographics."