Delta overcomes in 3Q, streak goes on for airlines this week
DALLAS — The price of air travel is poised to rise again, with airlines seeing beyond recent fare wars that have cut into their profits.
Delta Air Lines third-quarter profit fell more than 6 percent to $1.18 billion, partly because Hurricane Irma robbed the company of $140 million in revenue from canceled flights.
The hurricane’s impact was already known, however, so investors are more likely to seize on Delta’s prediction Wednesday that a proxy for average prices will rise by up to 4 percent over last year during the fourth quarter.
That forecast comes a day after American Airlines and United Airlines reported that the same key revenue figure would be better than expected in the third quarter, which ended Sept. 30.
U.S. airline stocks tumbled during July and August over concern that overly rapid expansion and fare wars — primarily between United and budget carrier Spirit Airlines at several big airports — were hurting profits.
It appears those fears were overblown.
Delta’s shares rose in premarket trading Wednesday, just one day after a broad rally in airline stocks. The leading airline stocks have regained most of their summer losses.
What is clear from all the airline reports is that demand for travel is still strong.
Strong demand “is overcoming some of those pricing skirmishes that you read about in our industry,” Delta CEO Ed Bastian told CNBC.
Delta enjoyed its busiest summer ever, as traffic rose 3.4 percent over last year. Fares were relatively flat, but extra fees for things like checked bags helped Delta rake in 1.9 percent more money for each seat flown one mile. That is a closely watched measure of pricing power in the airline business.
Importantly, Delta said that same figure would rise by between 2 percent and 4 percent in the October-through-December period that includes holiday travel.
Atlanta-based Delta said that excluding one-time items it earned $1.57 cents per share in the third quarter, four cents better than the forecast of analysts surveyed by FactSet.
Despite Hurricane Irma, revenue rose 5.5 percent to $11.06 billion, also slightly better than analysts anticipated.
The airline took in more money from a credit card deal with American Express, although it declined to give a figure, and from passenger fees and cargo-hauling.
Delta executives said they expect the airline’s weakest region, Asia, to improve by year end.
Profit fell, however, because costs rose 8 percent, even faster than revenue. Labor expenses jumped 10 percent on higher wages, and fuel spending climbed 8 percent including Delta and Delta Connection planes.
Fuel is a hard-to-predict cost that hangs over the industry. Airlines benefited from falling fuel prices in 2015 and 2016, but Delta paid $1.61 a gallon in the third quarter, up 11 cents from the summer before.
Shares of Delta Air Lines Inc. were up 78 cents to $53.50 more than an hour before Wednesday’s opening bell, although they ended Tuesday down 7 percent in 2017.