Delta warns of revenue hit from weak travel demand ahead of election

By Rajesh Kumar Singh

CHICAGO (Reuters) -Delta Air Lines warned of a hit to its fourth-quarter revenue from a likely slowdown in U.S. travel demand in the days leading up to the presidential election, sending its shares down 2.6% before the bell on Thursday.

The carrier expects fourth-quarter revenue between $13.9 billion to $14.2 billion, compared to average analysts' estimate of $14.22 billion.

"People like to be home during the election period," CEO Ed Bastian said on CNBC, adding that the slowdown in discretionary spending will be not be limited to the airline industry.

The weak forecast sent shares of rivals United Airlines and American Airlines (NASDAQ:AAL ) tumbling 2%, while Southwest Airlines (NYSE:LUV ) slipped 1.2%.

The demand slowdown, however, is expected to be temporary, Bastian said, as the holiday season is expected to be "strong".

The dull forecast comes as the airline industry is recovering from an excess supply of seats in the domestic market during the summer travel season, which forced carriers to discount fares to fill their planes.

Since then U.S. airlines have moderated capacity. Annual domestic seat growth has slowed to 1.5% in October and November from 5.5% in July, according to BofA analysts.

Delta said the steps taken by U.S. airlines to lower capacity improved its pricing power across regions in the third quarter. It expects the trend to continue in the December quarter.

The carrier forecast adjusted profit of $1.60 to $1.85 per share in the quarter through December, whose midpoint was above expectations of $1.70.

Its overall revenue is estimated to be up 2% to 4% in the quarter from a year ago on the back of a 3% to 4% increase in capacity.

Jefferies analyst Sheila Kahyaoglu said the forecast implies a flat-to-one-percent drop in fourth-quarter total revenue per available seat mile, a proxy for pricing power.

Delta reported an adjusted profit of $1.50 per share in the September quarter, lower than the $1.52 estimated by analysts, mainly due to mass flight cancellations following a global cyber outage.

A software update in July by global cybersecurity firm CrowdStrike (NASDAQ:CRWD ) triggered system problems for Microsoft (NASDAQ:MSFT ) customers, including many airlines.



The disruptions persisted at Delta even as they subsided the next day at other major U.S. airlines. It canceled about 7,000 flights over five days, disrupting the travel plans of 1.3 million customers.

The company said on Thursday the disruptions led to a 45 cents per share hit to its third-quarter profit.

Source: Investing.com