TLDR
- Delta Air Lines slashed its Q1 outlook due to declining consumer confidence and weaker domestic demand
- Revenue growth forecast reduced to 3-4% from previous 7-9% forecast
- Earnings forecast cut to 30-50 cents/share from 70 cents-$1/share
- Travel sector stocks broadly affected with Delta falling 10%, United 7%, and American 6%
- Premium, international, and loyalty revenue trends remain consistent with expectations
Delta Air Lines has significantly reduced its first-quarter forecast, citing weakening consumer confidence and softer domestic travel demand. The announcement triggered a broad sell-off across the travel sector as investors worry about potential industry-wide impacts.
The Atlanta-based carrier now expects revenue growth between 3% and 4% for the first quarter. This represents less than half of its earlier forecast of 7% to 9%.
Delta also slashed its forecast for adjusted earnings to between 30 cents and 50 cents per share. The previous guidance range was 70 cents to $1 per share.
In a regulatory filing, Delta attributed the outlook reduction to “the recent reduction in consumer and corporate confidence caused by increased macro uncertainty.” This uncertainty is “driving softness in domestic demand,” according to the airline.
The carrier also noted it was experiencing changes in last-minute bookings. This suggests travelers are making more cautious decisions about their travel plans.
Delta’s stock dropped roughly 10% in pre-market trading following the announcement. Other major carriers felt the impact as well.
United Airlines fell 7% while American Airlines dropped 6% in pre-market trading. Southwest Airlines, a discount carrier, saw a more modest decline of 2%.
The bad news extended beyond airlines. Online travel agencies Expedia and Booking Holdings fell 3.6% and 4.5% respectively.
Cruise operators weren’t spared either. Royal Caribbean, Carnival, and Norwegian Cruise Line Holdings all declined about 1%.
Travel stocks under pressure
Travel stocks had already been under pressure in recent weeks. Investors were concerned that signs of weaker consumer spending in other parts of the economy would eventually impact travel.
Delta’s announcement turned those fears into reality. The airline explicitly stated that both consumer and corporate confidence has weakened.
The U.S. Global JETS exchange-traded fund, which tracks airline performance, fell 2% in pre-market trading. It’s now down 20% from its 52-week high reached on January 21, the day after Presidential Inauguration Day.
Delta CEO Ed Bastian addressed the situation on CNBC’s “Closing Bell.” He stated that while he doesn’t expect a recession, consumer confidence has weakened.
Bastian noted that both leisure and business customers have pulled back on bookings. He also mentioned that recent safety concerns “somewhat exacerbated the impact.”
He referenced two incidents: the deadly midair collision between a regional jet and an Army helicopter in January in Washington, D.C., and Delta’s non-fatal crash on landing in Toronto last month.
Despite the reduced short-term outlook, Delta maintained its full-year forecast. This suggests the airline views the current weakness as temporary rather than a long-term trend.
On a more positive note, Delta emphasized that “premium, international and loyalty revenue growth trends are consistent with expectations.” This highlights the resilience of Delta’s diversified revenue streams.
The announcement comes just before a JPMorgan airline industry conference. At this event, airline CEOs are expected to update investors on current demand trends.
The timing of Delta’s announcement suggests the airline wanted to prepare investors before the conference. Other carriers will likely address similar concerns during their presentations.
Airline stocks had surged after Trump’s election
Airline stocks had surged after President Donald Trump’s election victory. Investors hoped the new administration would ease regulatory burdens on the sector and boost travel demand through pro-business policies.
Delta’s CEO had previously called Trump a “breath of fresh air” in a November interview. However, the recent stock performance suggests initial optimism may have been premature.
The next few weeks will be crucial for Delta and other airlines. Investors will watch closely to see if the consumer confidence issues are short-lived or signal a more persistent problem for the travel industry.
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