Key facts
- Delta Air Lines cut its annual profit forecast due to surging fuel costs.
- The airline now expects adjusted annual earnings of $5.10 to $5.60 a share.
- Delta's third-quarter fuel expense rose 62% year-on-year to $4.1 billion.
- The company's annual fuel bill is expected to increase by approximately $6 billion.
- Delta's refinery is projected to generate $700 million in profit this year.
Delta Air Lines on Friday lowered its annual profit forecast by nearly a quarter, as escalating fuel costs overshadowed strong travel demand and increased ticket prices. The airline's third-quarter fuel expense surged 62% year-on-year to $4.1 billion, exceeding its prior anticipation by over $500 million.
Chief Financial Officer Erik Snell attributed the revised outlook primarily to higher crude oil and refined jet fuel prices since the summer. Delta now projects adjusted annual earnings per share between $5.10 and $5.60, a decrease from the $6.50 to $7.50 range previously forecast. The new midpoint of $5.35 falls short of analysts' average estimate of $5.46.
In the third quarter, Delta's adjusted earnings per share of $1.72 narrowly missed the consensus estimate of $1.76, and its adjusted operating margin declined to 9.4% from 11.1%. The carrier is the first major U.S. airline to report third-quarter results, with competitors like United Airlines, American Airlines, and Southwest Airlines scheduled to release their figures later this month.
Despite higher fuel expenses, U.S. airlines have managed to pass on some costs to passengers, with average fares increasing about 25% year-on-year through August, according to the Bureau of Labor Statistics. However, analysts at Deutsche Bank anticipate that the industry will recover a smaller portion of increased fuel costs in the fourth quarter, with full recovery not expected until early 2027.
Delta highlighted its ownership of a refinery outside Philadelphia as a partial offset to fuel price volatility. Snell expects the refinery to generate $700 million in profit this year, providing a unique advantage over competitors. Nevertheless, even with a projected refinery benefit of 40 cents per gallon, Delta anticipates its fuel cost to rise to $4.25 per gallon in the fourth quarter from $3.61 in the third.