Like the smartest kid in class getting a “B” on the test, Delta’s latest earnings might be an omen for the rest of the industry. Yesterday, the airline cut its full-year outlook and reported lower-than-expected third-quarter results as surging fuel prices continue to strain its otherwise booming business. According to Delta: - The carrier slashed its full-year earnings outlook from $6.50–$7.50 per share to $5.10–$5.60, and shaved its free cash flow forecast from $3 billion–$4 billion to $2.5 billion.
- Adjusted revenue landed at $17.58 billion, up 15.7% year-over-year but below analysts’ estimates of $17.76 billion, per Bloomberg. Profits of $1.13 billion also missed expectations.
“All of it’s fuel,” CFO Erik Snell said when reporters asked why Delta cut its full-year guidance. The carrier said it ended up paying $500 million more in fuel costs in Q3 than it projected in July, bringing its quarterly gas bill to $4.1 billion. That’s a 62% increase from the same time last year, back when there wasn’t a war in Iran throttling the global oil market. These oil impingements turned Delta’s earnings lackluster, even in the face of strong travel demand that’s expected to continue through the holidays, and industrywide ticket prices that are up 23.4% year-over-year as of August. What are airlines to do?In addition to raising overall airfares, many major carriers are grappling with higher fuel prices by honing in on their wealthiest customers: - Several airlines have added more lucrative long-haul flights while cutting cheaper, less-profitable routes.
- Many carriers are racing to expand first-class and other premium seating options.
This strategy helped Delta offset some fuel costs, as revenue from premium seating rose 18% in the third quarter. Investors will get a better idea of how these tactics worked out for the broader industry when United, Southwest, American, Alaska, and JetBlue report earnings later this month. But…Delta—the most profitable airline in the US—has something its competitors don’t: It’s the only major US carrier that owns its own oil refinery.—ML | 
