Delta Drags Down Airlines After Fuel Cost Spurs Cut to Forecast

(Bloomberg) -- Delta Air Lines Inc. dragged down U.S. airlines after the carrier trimmed its profit outlook, citing the rising price of jet fuel.

Second-quarter earnings will be no more than $1.75 a share, Delta said in a statement Wednesday. That’s down from a previous forecast of as much as $2 a share.

Fuel prices have risen about 12 percent since the beginning of the quarter, and fares typically take six months to a year to catch up, the No. 2 U.S. airline said. Delta cut its forecast six weeks after a similar move by American Airlines Group Inc., the world’s biggest carrier.

Other airlines are likely to follow suit, said Adam Hackel, an analyst at Imperial Capital. “You’ll certainly see over the next week or two some more revisions as they get fuel fully priced in,” he said.

Delta fell 2.9 percent to $53.10 at 10:17 a.m. in New York after sliding as much as 3.7 percent for the biggest intraday decline in two months. Delta’s decline was the sharpest on a Standard & Poor’s index of five major U.S. airlines, which dropped 2 percent -- the second-biggest drop among industry groups on the S&P 500 Index.

Seat Supply

The carrier said it would make a decision within the next month on seating capacity for the fall. Paring the supply typically enables airlines to raise fares, assuming demand remains strong. The Atlanta-based airline maintained its prediction for an increase in capacity of no more than 4 percent this quarter.

While airlines won’t trim seats during the busy summer travel season, “there’s still enough time for them to look at it after Labor Day, when you really hit a pretty dramatic off-peak period for this industry,” Hackel said. The industry is still benefiting from strong travel demand, he said.

Brent crude, a benchmark for global oil prices, has climbed 16 percent this year to a little more than $75 a barrel.

“While we’ve seen a little bit of abatement the last couple of weeks, it’s pretty clear we are going to have to adjust to a price in the mid-70s versus something akin to the low to mid-60s as we were coming into the year,” Delta Chief Financial Officer Paul Jacobson said at a Deutsche Bank AG conference. “We’re figuring out the best way to respond to that challenging environment.”

©2018 Bloomberg L.P.

Bloomberg
Stay Updated With OnWeb News On BloombergQuint