Delta Slashes Outlook as Fuel Prices Rise

Delta Air Lines Inc. (NYSE: DAL) reported its second quarter financial results. Despite reporting better than expected results, the airline expects increased fuel expenses, resulting in a trimmed outlook.

Delta shares were trading 2.5% higher during Thursday’s pre-market hours.

For the second quarter, Delta reported revenue of USD 11.8 Billion, increasing 8.2% year over year, and topping Thomson Reuters USD 11.72 Billion. The Company reported adjusted earnings of USD 1.77, topping Thomson Reuters’ estimates of USD 1.72.

Total passenger revenue was USD 10.5 Billion in the quarter. Delta saw the strongest growth in its domestic and Atlantic flights. The Company said the quarterly revenue was driven higher by improvements across its segments, including double-digit increased in both cargo and loyalty revenue.

“The great service of the Delta people, strong demand for our product, and momentum across our business allowed Delta to deliver the highest quarterly revenue in our history and increase our revenue premium to the industry,” said Glen Hauenstein, Delta’s President.

Due to the increasing fuel prices, Delta slashed its 2018 forecast. Delta Chief Executive Officer Ed Bastian expects an increased USD 2 Billion to fuel costs for the year. Bastian trimmed earnings forecasts to USD 5.34 to USD 5.70 from the previous projection of USD 6.35 to USD 6.70.

Fuel costs have caused airlines increased expenditures, as prices have nearly risen by 60% in the past year alone.

“With strong revenue momentum, an improving cost trajectory, and a reduction of 50-100 bps of underperforming capacity from our fall schedule, we have positioned Delta to return to margin expansion by year end.” said Bastian.

Analysts have warned investors about airline forecasts. Morgan Stanley Analyst, Rajeev Lalwani, said in a note on Monday that he expected Delta to cut its earnings. He also forecasts Delta competitor, American Airlines to report earnings in the lower range.

Deutsche Bank Analyst, Michael Linenberg, said in a note that airline companies are pressured by rising fuel costs, trade issues, supply concerns, Iran sanction, Italy, North Korea, Russia, Brexit, etc.

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