Delta slashes profit forecast on weak domestic travel demand

NEW YORK – Delta Air Lines Inc. cut its profit expectations roughly in half for the first quarter as economic volatility and concerns over flight safety weigh on domestic travel demand.

Earnings will be 30 cents to 50 cents a share in the period, down from an earlier forecast of as much as US$1, the US carrier said March 10 in a statement. Delta also lowered its guidance for revenue growth to reflect a US$500 million reduction, and for operating margins in the first three months.

The airline pointed to a “recent reduction in consumer and corporate confidence caused by increased macro uncertainty, driving softness in domestic demand.” The premium and international segments remain in line with prior expectations, Delta said. 

The fatal collision involving an American Airlines Group Inc. plane on Jan. 29 and the crash landing of a Delta regional jet about two weeks later have led some consumers to question air travel, Delta chief executive Ed Bastian said in an interview with CNBC.

“These events somewhat exacerbated the impact on us,” he said. “It’s not just corporate and consumer, but it was also a question about safety in our industry. We do know it’s safe to fly.”

Other airlines are expected to update existing guidance for the quarter at a J.P. Morgan conference in New York on march 11, industry analysts have said.

Delta’s shares fell, dragging down shares of United Airlines Holdings Inc., American and Southwest Airlines Co.

About half of the US$500 million revenue dip is likely transitory heading into the second quarter, Mr Bastian said. The carrier now sees revenue rising as much as 4 per cent from a year ago, compared with its earlier outlook for as much as a 9 per cent jump. Delta didn’t change its full-year outlook, mainly on a decline in prices for oil that’s refined into jet fuel.

The move marks a stark reversal from the tone on the company’s last earnings report, when the stock jumped the most in four years.

The aerospace and defense, automobile, media, entertainment and technology industries have pulled down corporate travel, Mr Bastian said in the CNBC interview, followed by a slump in consumer bookings.

“We really do believe this is a domestic issue,” he said. “We’ll find out, of course, as the weeks go and policies start to get decided upon.”

Demand in the domestic market also has been affected by winter storms and reduced government travel amid widespread job cuts, contributing to a developing economic “soft patch” that has increased consumer uncertainty and may affect decisions on discretionary spending, according to a recent Deutsche Bank report. BLOOMBERG