Delta Air Lines Stock Dip on Bearish Q3 Outlook

Delta Stock

On September 14, shares of Delta Air Lines, Inc. (NYSE:DAL) experienced a 0.56% decline, closing the trading session at $39.33. This drop was attributed to the less favorable guidance provided by DAL for the third quarter of 2023, primarily due to the impact of high fuel prices and increased non-fuel unit costs.

For the third quarter of 2023, Delta now expects the average fuel cost per gallon to fall within the range of $2.75 to $2.90, compared to the previous estimate of $2.50 to $2.70. The rise in oil prices is a concerning factor for airlines, as fuel costs represent a significant input cost in the aviation industry.

In addition to the escalating fuel expenses, Delta faces challenges related to non-fuel unit costs. The cost per available seat mile (CASM: adjusted) for the September quarter is now projected to increase by 1-2%, as opposed to the earlier estimate of a 1-3% decline, primarily due to higher-than-expected maintenance costs.

Delta has adjusted its earnings outlook for the third quarter of 2023 to a range of $1.85 to $2.05 per share, down from the previous projection of $2.20 to $2.50 per share. The current Zacks Consensus Estimate stands at $2.37 per share.

The airline anticipates third-quarter revenue growth (adjusted) to fall within the upper half of the previous guidance range of 11-14%. However, the operating margin is now expected to be around 13%, compared to the previous estimate of mid-teens. Delta also maintains its expectation of a 16% increase in capacity for the third quarter of 2023 compared to the same period in 2022.

Total revenue per available seat mile is projected to decline by 2-3% from third-quarter 2022 actuals, down from the previous estimate of a 2-4% decline. Delta has reaffirmed its adjusted 2023 earnings outlook, which remains in the range of $6 to $7 per share.

Delta is not the only airline revising its projections for third-quarter 2023 fuel prices per gallon. Other airlines, including United Airlines, Southwest Airlines, Alaska Air Group, and American Airlines, have also increased their fuel cost per gallon projections for the same period due to rising fuel prices. These adjustments reflect the ongoing challenges posed by high fuel costs in the airline industry.

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