Delta Air growth to slow further as US shutdown weighs
Airline warns of effect on performance while CEO says reduced government travel will cost $25m a month
Delta Air Lines on Tuesday posted a slight beat in fourth-quarter profit but forecast a drop in revenue growth in the first quarter, hit by a partial government shutdown and worries about whether airlines can raise fares in an uncertain global economy.
Delta, the No 2 US airline, warned that revenue per mile flown would be hurt in the current quarter by the timing of Easter, increasing foreign exchange headwinds, and the US government shutdown, which entered its 25th day on Tuesday.
Travellers are stuck in long airport queues with more and more security screeners not showing up for work during the shutdown while airlines face delays in federal certification for new routes and aircraft.
Delta CEO Ed Bastian said the partial shutdown would cost $25m a month in reduced government travel.
JP Morgan analyst Jamie Baker calculated that Delta generated about $475m in annual revenue through negotiated government fares. The company’s first-quarter target for unit revenue, a closely watched metric of revenues per mile flown, could be at risk if the shutdown dragged on past January, Baker said.
Baker’s estimate does not include the effect of the shutdown on leisure travel by affected government employees. Delta operates about 86 daily flights from Washington-area airports.
Delta said unit revenue would range from flat to 2% higher in the first quarter, compared with 3.2% growth in the fourth quarter ended December 31.
Analysts warned that overall corporate travel would be affected by the shutdown and replaced with lower-yielding leisure travel.
Delta forecast first-quarter earnings of 70c-90c per share, below analysts’ estimate of 94c, according to IBES data from Refinitiv.
Delta and larger rival American Airlines lowered estimates earlier this month for fourth-quarter revenue per available seat, raising concern that an economic deceleration was hitting business travel. The forecasts sent their share prices sharply lower.
On an adjusted basis, the airline earned $1.30 per share in the fourth quarter versus the $1.27 per share analysts expected.
Total operating revenue rose 5% to $10.74bn, in line with the Wall Street estimate. The share price firmed 0.1% to $47.80.