Delta Air Lines kicked off airline earnings season Thursday with a mixed bag of results. While the company reported strong travel demand and met analysts’ expectations for second-quarter earnings, its third-quarter revenue forecast fell short, sending shares down nearly 9% premarket.
The culprit? An excess of flights that is driving down fares despite high enthusiasm for travel. Delta expects third-quarter sales to rise no more than 4%, below analysts’ estimates of 5.8%. As a result, the airline has revised its earnings per share projections to $1.70-$2.00, below $2.05 expected.
The news underscores the pressure airlines are facing from rising costs and increased capacity. While Delta, known as the industry’s most profitable airline, managed to stay afloat in Q2 with adjusted earnings per share in line with expectations, its net income still fell nearly 30% year over year.
One bright spot is Delta’s premium seat sales. Those tickets increased 10% in Q2, demonstrating continued demand for elevated travel experiences. Additionally, the airline expects its unit revenue, a key profitability metric, to turn positive in September.
However, Delta is not immune to industry challenges. Expanded international travel programs, including competition for customers during the Paris Summer Olympics, are expected to dampen revenues slightly from transatlantic units.
Despite the current headwinds, Delta remains confident in its full-year outlook, reiterating its guidance for earnings of $6-$7 per share and $4 billion in free cash flow generation. The airline also points to its relative protection from overcapacity thanks to its focus on premium seating and other revenue streams beyond standard economy tickets.
The next few weeks will be revealing, as more airlines report earnings. This early look from Delta suggests a season of high demand tempered by cost pressures and a struggle for profitability amid increasingly fierce competition.