Delta Air Lines saw their shares drop by 3.5% during the early US cash session following the airline’s decision to lower its full-year earnings forecast due to the impact of rising jet fuel costs on their margins. This adjustment was somewhat anticipated given the current jet fuel prices, but it serves as a cautionary signal: Delta’s ownership of a refinery provides some protection against the refining crisis, highlighting the additional challenges faced by smaller carriers without this internal buffer.
The Atlanta-based carrier now anticipates adjusted earnings of $5.10 to $5.60 per share for the year, down from the initial forecast of $6.50 to $7.50 in July. The revised forecast aligns with the Bloomberg Consensus estimate of $5.44 for the year.
Adjusted third-quarter earnings came in at $1.72 per share, falling short of the Bloomberg Consensus estimate of $1.82. Adjusted revenue experienced a 16% increase to $17.6 billion, closely in line with consensus estimates.
“I wouldn’t call that a surprise to anyone,” remarked CEO Ed Bastian regarding the revised forecast. “It’s all due to the higher fuel prices. If this trend continues, which I believe it will, as the leading airline in the industry, we are best positioned to adjust pricing accordingly.”
Earlier this year, we highlighted Delta’s operation of an in-house refinery known as Trainer Refinery. The refinery, with a capacity of 185,000 to 190,000 barrels per day, is managed by Monroe Energy, a subsidiary of Delta Air Lines, and is located along the Delaware River in Delaware County, Pennsylvania.
Jefferies analyst Sheila Kahyaoglu mentioned on Bloomberg Television that “the refinery is expected to provide Delta with about a $1 billion benefit this year, giving them a competitive advantage.”
“However, the continuous rise in fuel costs could eventually impact consumer demand,” Kahyaoglu cautioned, “posing a significant headwind for all airlines.”
Delta remains the sole major US airline with a significant refinery operation, underscoring the challenging operating environment faced by other carriers amidst the escalating jet fuel prices.
The earnings revision sets a challenging backdrop for United Airlines, American Airlines, and Southwest Airlines, all of which are scheduled to report later this month.
Delta Air Lines experienced a decline of up to 3.5% in the early US cash session.
The broader airline index also saw a decrease of about 1.5%.
Despite the challenges posed by high jet fuel prices on carrier margins, US air travel continues to show resilience.
… in the face of high jet fuel prices crimping carrier margins.