Delta Air Lines Faces Revenue Loss Due to U.S. Presidential Election

Photo : Reuters

Delta Air Lines, based in Atlanta, has expressed optimism about its upcoming fourth quarter, forecasting it to be one of the most profitable in its history. This positive outlook is attributed to enhanced pricing power and robust holiday travel bookings, positioning the airline well in a competitive market. However, the carrier has also warned that the forthcoming U.S. presidential election could negatively impact its revenue.

The company highlighted that many consumers prefer to be home during the election season, leading to a temporary hold on discretionary spending. Specifically, Delta anticipates that the presidential election, scheduled for November 5, will reduce its unit revenue by approximately one percentage point in the December quarter. Analysts have indicated that the anticipated impact might be more significant than they had initially estimated.

TD Cowen analyst Thomas Fitzgerald noted, “The U.S. election turned out to be a larger headwind than most expected.” Delta’s executives have pointed out that the uncertainty surrounding the election is likely to dampen travel demand for two weeks around the election date. Despite this dip, the airline expects a resurgence in bookings in the following weeks.

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Glen Hauenstein, Delta's President, remarked during an earnings call that, historically, domestic travel demand tends to fluctuate during the election period. He noted that revenue trends appear “significantly better” in October and December compared to November.

These insights contributed to a slight recovery in Delta’s share price, which had been down by about 0.1%, trading at $50.78. For the quarter ending in December, Delta is projecting an adjusted profit of between $1.60 and $1.85 per share. This forecast is slightly above analysts' expectations, which sit at around $1.70 per share, based on LSEG data.

Delta expects its overall revenue to rise by 2% to 4% compared to the same quarter last year, driven by a capacity increase of 3% to 4%. The airline credited measures implemented by U.S. carriers to moderate capacity, which have improved pricing power across all regions in the third quarter. Delta anticipates that this trend will continue into the December quarter.

Earlier in the year, an oversupply of airline seats during the summer travel season led to significant fare discounts, adversely affecting earnings. However, U.S. airlines have since adjusted their capacities, with annual domestic seat growth slowing to 1.5% in October and November, down from 5.5% in July, as noted by analysts at BofA.

These capacity adjustments, combined with a 25% year-on-year decline in jet fuel prices in North America, have enhanced the earnings outlook for the airline industry, resulting in a notable uptick in airline shares. Since early August, the NYSE Arca Airline index has risen by 25%, significantly outpacing an 8% increase in the S&P 500 index. Delta's shares have also surged by more than 30%.

In its most recent financial report, Delta announced an adjusted profit of $1.50 per share for the September quarter, slightly below analysts’ expectations of $1.52. This decline was primarily attributed to extensive flight cancellations triggered by a global cyber outage. A software update by the cybersecurity firm CrowdStrike in July caused system issues for several Microsoft customers, including numerous airlines.

While the disruptions were resolved relatively quickly for most other major U.S. airlines, Delta continued to experience challenges, resulting in approximately 7,000 flight cancellations over five days, which affected the travel plans of about 1.3 million customers. The company estimated that these disruptions incurred a 45-cent-per-share loss in its third-quarter profit.

As Delta navigates these challenges, it remains focused on optimizing its operations and positioning itself for a successful holiday season.