Delta Air Lines (NYSE:DAL) is set to release its third-quarter 2023 earnings on October 12, before the market opens. However, there are concerns that these earnings may disappoint, and here’s why:
Delta has had a mixed earnings history, surpassing the Zacks Consensus Estimate in two of the last four quarters but missing it on the other two occasions. The average beat has been 2.12%. Moreover, the Zacks Consensus Estimate for third-quarter 2023 earnings has been revised downward by 16.95% over the last 60 days.
One major factor affecting Delta’s performance in the third quarter is the high fuel costs. With oil prices on the rise, the cost of fuel per gallon is likely to have increased. Delta’s projection for the third quarter places the average fuel cost per gallon in the range of $2.75 to $2.90, up from the previous estimate of $2.50 to $2.70. The estimated cost stands at $2.88 per gallon.
Additionally, Delta is facing expenses related to non-fuel unit costs, particularly due to higher maintenance costs. The cost per available seat mile (CASM: adjusted) for the September quarter is now expected to increase by 1-2%, a deviation from the earlier estimate of a 1-3% decline compared to the third quarter of 2022. The anticipated increase is approximately 1.3% from the third quarter of 2022 actuals.
Due to these rising costs, Delta’s management has adjusted its third-quarter projections for adjusted operating margin and adjusted earnings per share. The operating margin, on an adjusted basis, is now predicted to be around 13%, down from the earlier expectation of mid-teens. Delta’s current projection for third-quarter 2023 adjusted earnings falls in the range of $1.85 to $2.05 per share, compared to the previous estimate of $2.20 to $2.50. The Zacks Consensus Estimate for third-quarter earnings currently stands at $1.96.
On a more positive note, Delta expects its capacity to improve by 16% in the third quarter of 2023 compared to the same period in the previous year. This boost in capacity is attributed to strong demand for air travel, which is likely to have positively impacted the top line. Passenger revenues for the third quarter of 2023 are expected to increase by 8.9% compared to the same quarter in the previous year.
In the second quarter of 2023, Delta reported earnings of $2.68 per share (excluding 16 cents from non-recurring items), comfortably beating the Zacks Consensus Estimate of $2.42. This was a significant improvement from earnings of $1.44 reported in the same period a year ago, as air travel demand had not fully recovered at that time. Revenues for the second quarter came in at $15,578 million, surpassing the Zacks Consensus Estimate of $14,991.6 million, with a year-over-year gain of 12.69%, driven by increased air travel demand.
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