Delta CEO highlights ‘testy’ geopolitical environment behind lowered earnings guidance

For 2024, Delta expects earnings of $6 to $7 a share, below the target of over $7 a share the company outlined at an investor day in December 2022. Delta also expects 2024 free cash flow of $3 billion to $4 billion, an improvement of up to $2 billion over 2023.

Speaking during a conference call to discuss the results, Delta CEO Bastian described the factors that influenced the lowered guidance. “There are a bunch of macros that we look at,” he said, adding: “The geopolitical front continues to be quite testy.” The CEO also pointed to energy prices and ongoing supply-chain issues that have been weighing on the airline industry.

Related: Airline stocks have had a great run. Here’s what analysts expect from here.

“To be prudent, we should set expectations a little bit lower and hope to overachieve,” he added.

Delta’s net income was $2.04 billion, or $3.16 a share, compared with $828 million, or $1.29 a share, in the year-ago period. Adjusted earnings per share, which excludes nonrecurring items, came in at $1.28, compared with $1.48 in the same period last year, beating the FactSet consensus of $1.16.

Delta’s
DAL,
-8.97%
revenue was $14.2 billion, a 6% increase from the prior year’s quarter. Adjusted revenue was $13.7 billion, an 11% increase over the same period last year, beating expectations. Analysts surveyed by FactSet were looking for revenue of $13.6 billion.

Despite the macroeconomic pressures, demand for air travel remains strong, according to Bastian. “Travel remains a top priority,” he said during the conference call. “We’re seeing continued improvement in the corporate sector,” he added. “We’re finally starting to see tech companies travel again.”

Related: American Airlines’ stock gains altitude on Morgan Stanley upgrade after a ‘decent’ holiday season for carriers

Bastian highlighted the entertainment and automotive sectors among those seeing a rebound in corporate travel.

Domestic passenger revenue was $8.8 billion, a 7% increase from the year-ago period. International revenue climbed 25%, boosted by double-digit revenue and capacity growth in the company’s Transatlantic, Pacific and Latin entities.

Load factor was 84%, down from from 85% in the prior year’s quarter and below the FactSet consensus of 84.8%. Traffic rose 14% to 57.7 billion revenue passenger miles, and capacity rose 15% to 68.5 billion available seat miles.

Heading into earnings, investor conviction around what to expect from Delta and the airline industry generally, according to Melius Research analyst Connor Cunningham. “The lack of conviction from investors is showing through in the stock performance today,” he wrote, in a note released Friday afternoon. “At the same time, the concern around
escalating events in the Red Sea has resulted in oil prices moving up.”

Related: Airline stocks slide after Delta lowers 2024 earnings guidance

But there are still opportunities ahead for Delta, according to the analyst. “When the dust settles, Delta has clear levers in place to lead to outperformance with their premium products, benefits from their network rebuild, improving corporate travel trends and share gains,” he wrote. “Within a challenging industry, Delta should continue
to garner the majority of investor interest given top tier margin performance and cash generation.”

During the conference call, Delta executives were also asked whether they had seen any impact from the recent Alaska Air Group Inc.
ALK,
-4.92%
incident in which a panel blew out of a 737 Max 9 airliner shortly after takeoff from Portland, Ore. An executive said that Delta has seen “a small uptick” in demand, specifically in Seattle.

On Friday, Delta also announced an order for 20 Airbus
AIR,
+0.11%
A350-1000s, with deliveries to begin in 2026. Delta has options for an additional 20 of the fuel-efficient wide-body aircraft.

Related: Delta Air Lines scales back changes to SkyMiles loyalty program after revolt by customers

Delta’s shares have risen 1.1% in the last 52 weeks, compared with the S&P 500’s
SPX
gain of 19.5%.