By Rajesh Kumar Singh
CHICAGO (Reuters) -Delta Air Lines warned on Thursday of a hit to fourth-quarter revenue. Consumers want to be at home around the upcoming US presidential elections and are holding back on their discretionary spending.
Still, the Atlanta-based airline said the current quarter will be one of the most profitable fourth quarters in its history, thanks to improved pricing power and strong leisure travel bookings.
Delta said the Nov. 5 presidential election is expected to cut 1 percentage point from unit revenue in the December quarter. Some analysts said the hit is worse than their estimates.
“The US election turned out to be a bigger headwind than expected,” said TD Cowen analyst Thomas Fitzgerald.
Delta said election-related uncertainty would dampen travel demand for two weeks around Nov. 5, but bookings were expected to pick up in the weeks afterward.
“As we have seen historically, domestic travel demand is impacted in the weeks surrounding the election,” Delta President Glen Hauenstein told analysts during an earnings call. He added that sales trends in October and December were “significantly better” than in November.
These comments helped Delta’s stock limit losses in afternoon trading. They fell about 0.1% to $50.78.
The company expects adjusted earnings of $1.60 to $1.85 per share in the quarter through December, compared with analyst expectations of $1.70 per share, according to LSEG data.
Total revenue in the quarter is expected to rise 2% to 4% from a year ago, thanks to a 3% to 4% increase in capacity.
Delta said actions taken by U.S. airlines to moderate capacity improved pricing power across all regions in the third quarter. It expects this trend to continue in the December quarter.
An oversupply of airline seats in the domestic market during the summer season had forced airlines to cut fares to fill their planes, hurting their revenues.
US airlines have since limited their capacity. According to BofA analysts, annual domestic seat growth fell to 1.5% in October and November from 5.5% in July.
Capacity adjustments and a 25% year-on-year decline in jet fuel prices in North America have boosted the industry’s earnings outlook, sending airline shares higher.
The NYSE Arca Airline index is up 25% since the beginning of August, surpassing the 8% gain in the . Delta shares have also risen more than 30%.
The US airline reported adjusted earnings of $1.50 per share in the September quarter, lower than analysts’ estimates of $1.52, mainly due to mass flight cancellations following a global cyber disruption.
A July software update by global cybersecurity company CrowdStrike (NASDAQ:) caused system issues for Microsoft (NASDAQ:) customers, including many airlines.
The disruptions continued at Delta, even as they disappeared at other major U.S. airlines the next day. It canceled about 7,000 flights in five days, disrupting the travel plans of 1.3 million customers.
The company said Thursday that the disruptions led to a loss of 45 cents per share in third-quarter earnings.
