Delta cuts 2024 profit outlook on higher costs, economic risks; shares fall

by | Jan 12, 2024 | Business

By Rajesh Kumar Singh

CHICAGO (Reuters) -Delta Air Lines on Friday scaled down its profit outlook for the current year, citing higher costs, supply chain issues and macroeconomic uncertainties.

The company’s shares fell more than 8% shortly after midday, dragging down the broader the NYSE Arca Airline index.

The Atlanta-based carrier now expects an adjusted per-share profit of $6 to $7 this year, compared with its previous target of more than $7 first outlined in 2021.

The 2024 estimate compares with analysts’ expectations of $6.50 according to LSEG data.

The company said it had not anticipated the run-up in wage rates and general inflation when it first issued the profit outlook. More importantly, the full extent of supply chain constraints were unknown at that time, it added.

In an interview, Delta CEO Ed Bastian said the company still had an internal earnings goal of more than $7 a share, but it was offering an outlook to the market that it had “a good deal of confidence in.”

“With the amount of uncertainty that continues to exist within the supply chain, in the maintenance arena, within the economic outlook, we wanted to be prudent,” Bastian told Reuters. “But that doesn’t mean we can’t out-produce it.”

Shortages of parts and labor continue to hobble aerospace supply chains, impacting aircraft deliveries and forcing airlines fly older planes longer than expected. That has driven up maintenance and repair costs.

“We expect maintenance cost headwinds and labor wage inflation will drive higher unit costs for most carriers in 2024,” analysts at Barclays said in a note.

Delta’s aircraft maintenance costs were up 23% last year from the previous year. The company told investors that maintenance costs were expected to be up $350 million in 2024 from a year ago.

Bastian said maintenance expenses will remain higher until issues such as labor shortages, quality control and inflation ease.

“It’s going to be a multi-year period of time before the overall level of maintenance support and efficiency gets back to pre-pandemic levels,” he said.

The company said it has moderated its hiring plans including those for pilots, which is estimated to be down over 50% in 2024 from a year ago.

There also have been lingering concerns about travel spending as rising costs of living stretch household budgets.

Bastian, however, said the company continued to see strong demand in all markets, adding the airline marked record bookings this week.

While demand for transatlantic travel is expected to cool down from a year ago, it will likely remain healthy, he said.

Transatlantic travel is the U.S. airline industry’s most lucrative long-haul market. It accounted for about 19% of Delta’s passenger revenue last year.

Strong holiday demand, however, helped Delta beat Wall Street estimates for fourth-quarter earnings.

Adjusted profit for the fourth quarter came in at $1.28 per share, beating expectations of $1.17.

For the first quarter, the company forecast an adjusted profit of $0.25 to $0.50 per share, compared with market estimates of $0.38 a share.

(Reporting by Rajesh Kumar Singh, Additional reporting by Shivansh Tiwary and Mehr Bedi; Editing by Jamie Freed, Devika Syamnath and Richard Chang)


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