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Delta Surges Most in S&P 500 on Forecast, $7 Billion AmEx Target

Delta Jumps as Strong Business Travel Bolsters Earnings Outlook

(Bloomberg) -- Delta Air Lines Inc. surged the most on the S&P 500 Index after raising its profit outlook and extending a lucrative credit-card partnership with American Express Co.

Strong demand from high-paying business passengers will help push first-quarter earnings ahead of expectations, Delta said in a regulatory filing Tuesday. The company also scored a long-term boost, saying the AmEx deal will more than double the airline’s credit-card revenue to almost $7 billion by 2023.

The carrier’s upbeat tone on travel trends eased concerns of a business-cycle slowdown, said Savanthi Syth, an analyst at Raymond James Financial Inc., and contrasted with reports of sagging leisure travel by Southwest Airlines Co. and JetBlue Airways Corp. Delta will set the tone for the airline industry’s earnings season when it publishes final results April 10, the first report among major U.S. carriers.

Delta Surges Most in S&P 500 on Forecast, $7 Billion AmEx Target

“Their guide certainly is impressive and confirms healthy revenue trends,” said Susan Donofrio, an analyst at Macquarie Group. “We’ve seen a pretty consistent acceleration” of both leisure and business demand, she said, despite “some pockets of softness.”

Delta advanced 7 percent to $55.83 at 12:18 p.m. in New York after climbing as much as 7.2 percent for the biggest intraday gain in four years. An S&P 500 index of airlines rose 3.7 percent, with United Continental Holdings Inc. and American Airlines Group Inc. posting the largest gains in Delta’s wake.

Adjusted first-quarter earnings will range between 85 cents and 95 cents a share, Delta said. The midpoint was 10 cents higher than both the previous outlook and the average of analysts’ forecasts compiled by Bloomberg.

Marketing Value

Delta’s 11-year extension of its co-branded credit-card agreement with AmEx helps put the airline on track “to be one of the world’s most valuable” marketing companies, said Joe DeNardi, a Stifel Financial analyst. The deal also makes Delta more attractive as a potential takeover target by Warren Buffett’s Berkshire Hathaway Inc., the carrier’s largest shareholder, he said in a note to investors.

Delta generated $3.5 billion from selling reward miles last year to AmEx and others, DeNardi said. Growth projections indicate healthy expected gains in customers signing up for the credit card, “continued strength” in their spending and an improvement in the price Delta receives for each mile, he said.

Pricing Gains

Sales climbed about 7 percent in the first quarter, Delta said, topping its earlier outlook for as much as 6 percent.

Revenue from each seat flown a mile, a gauge of pricing power, rose roughly 2 percent, at the top end of its previous outlook. Costs on the same basis, an industry measure of efficiency, climbed no more than 0.5 percent, less than the Atlanta-based carrier had expected.

Southwest complained last week about weaker leisure travel. The carrier also has suffered a rash of flight cancellations amid the grounding of Boeing Co.’s 737 Max jetliner and labor tensions with airline mechanics, who reached an agreement in principle last month after years of talks.

JetBlue has been hurt by tougher price competition on cross-country flights and weakness in the Caribbean market.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson

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