Delta remains bullish on travel demand, forecasts strong earnings

By Rajesh Kumar Singh and Aishwarya Nair

CHICAGO (Reuters) - Delta Air Lines (NYSE:DAL) on Thursday offered an upbeat outlook for summer travel demand that it expects will result in higher-than-expected profit for the quarter through June, despite growing risks of an economic recession.

Rising interest rates, high inflation, mounting job losses and turmoil in the banking industry have fueled concern about the strength of consumer spending, which has allowed carriers to mitigate rising labor and fuel bills with higher ticket prices.

Those concerns were amplified on Wednesday after American Airlines (NASDAQ:AAL) Group Inc's revised earnings forecast fell short of Wall Street estimates, sparking a sell-off in airline shares.

Investors had been alarmed by recent booking data that showed customers were booking trips well in advance, leading to a moderation in close-in ticket sales, particularly for domestic travel. Delta's advance cash bookings in the first quarter were up nearly 20% compared to 2019.

Chief Executive Ed Bastian, in an interview with Reuters, attributed it to an attempt on the part of customers to lock in the opportunity to travel sooner as well as elimination of flight change fees by many airlines, including Delta.

"Consumers are anxious to travel," he said, adding that demand for international travel was especially strong this summer.

Delta's air traffic liability, reflecting future bookings, at the end of the January-March quarter came in at $11.2 billion, up about 35% from the end of last year.

Some analysts said the company's outlook helped ease demand concerns. "Ticket purchase patterns have changed, let's get used to it," said Citi analyst Stephen Trent.

Delta's shares, however, were down 0.5% at $33.57 in afternoon trade.

The lifting of pandemic-related travel restrictions is encouraging more people to travel overseas. Travelers (NYSE:TRV) are also being emboldened by a strong U.S. dollar and more flexible work arrangements.

Delta said 75% of its international flights in the June quarter have already been booked. Premium cabins, which have been outperforming the main cabin in terms of revenue growth, are in great demand on its long-haul flights, it said.

To meet increasing demand, it is adding 20% of seating on international flights from a year ago.

Revenue in the June quarter is estimated to rise 15% to 17% from a year ago on capacity growth of 17%.

"We're growing supply at that level and not seeing a deterioration in the overall revenues," he said. "It's unusual in our industry."

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Delta expects an adjusted profit of $2.00 to $2.25 per share in the second quarter, higher than a profit of $1.66 per share estimated by analysts.

It posted weaker-than-expected profit of 25 cents a share in the first quarter, as winter storms hurt its revenue and drove up operational expenses.