Delta Air offers bullish outlook on international travel demand

By Rajesh Kumar Singh

CHICAGO (Reuters) – Delta Air Lines (NYSE:) on Thursday forecast higher-than-expected profit for the second quarter, citing “record” bookings for summer travel, including strong demand for international trips.

The company’s earnings in the January-March quarter, however, fell short of Wall Street estimates. Chief Executive Ed Bastian, in an interview with Reuters, said fuel price volatility and bad weather affected the company’s performance in the quarter.

Bastian remained upbeat about consumer demand despite growing risks of an economic recession. Premium cabin revenue grew faster than the main cabin in the first quarter.

“Consumers are anxious to travel,” he said, adding that demand for international travel was especially strong this summer and travelers were booking trips well in advance.

Travel demand in the United States is currently strong but rising interest rates, persistently high inflation, mounting job losses and a turmoil in the banking industry have cast a shadow over consumer spending.

U.S. carriers have leveraged the demand to offset rising labor and fuel bills with higher ticket prices. But investors are worried that any pullback in travel spending would hurt airline profits.

American Airlines (NASDAQ:) on Wednesday forecast first-quarter profit below market expectations, joining rival United Airlines in signaling a hit from high labor and fuel costs.

Bastian downplayed those concerns. He said Delta recorded the 10 highest sales days in its history last month and had been able to protect its pricing power despite adding capacity.

The company expects its revenue in the June quarter 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.”

Delta expects an adjusted profit of $2.00 to $2.25 per share in the second quarter, with an operating margin of 14% to 16%. That is higher than a profit of $1.66 per share estimated by analysts.

Non-fuel costs for the quarter are projected to rise between 1% to 3% year-on-year. Delta pilots last month ratified a new contract that includes over $7 billion in cumulative increases in pay and benefits over four years and is widely expected to be a benchmark for contract negotiations at rival carriers.

Delta retained its full-year earnings forecast after reporting adjusted profit for the first quarter of 25 cents a share, below 30 cents a share expected by analysts.

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