U.S. airline stocks rebounded early Wednesday after
Delta Air Lines
eased fears about travel demand into the Christmas season and beyond with an upbeat outlook.
(ticker: JBLU) unsettled investors Tuesday as it said an expected strong last-minute surge in December demand hadn’t materialized as it anticipated. But it was unclear whether the low-cost carrier’s revenue warning was an early sign of softening demand across the sector.
Delta (DAL) took the edge off those concerns as it hiked its fourth-quarter guidance and issued a 2023 outlook that beat analysts’ estimates, in a filing Wednesday. The stock climbed 4.4% in premarket trading, having fallen 4% Tuesday. There were smaller rebounds for United Airlines and American Airlines, which rose around 1.5%.
Robust demand and industrywide capacity constraints have enabled carriers to hike airfares—a key factor behind the sector’s stellar second half of 2022, along with falling fuel prices. That strong demand is continuing, at least for Delta.
Delta said it now expects earnings per share (EPS) of $1.35 to $1.40 in the December quarter, up from its previous guidance of $1 to $1.25. Analysts expect EPS of $1.12, according to FactSet data. It sees revenue for the final three months of the year climbing 7% to 8% from 2019 levels, compared with guidance issued in October for a 5% to 9% jump.
“Demand for air travel remains robust as we exit the year and Delta’s momentum is building,” CEO Ed Bastian said in a statement ahead of the company’s investor day.
The carrier was bullish on its prospects for 2023, guiding for 15% to 20% revenue growth and a near doubling of EPS to $5 to $6 per share. That’s better than the analyst consensus for $4.77.
Delta expects to fully restore its network in 2023 and for non-fuel unit costs to decline 5% to 7%, driving margin expansion.
The company is facing the prospect of rising labor costs next year, though there was no mention of that in the filing. Delta offered its pilots a more than 30% raise over three years, including an 18% hike when the deal is signed. It still has to be approved by union leaders and pilots.
Its longer-term target for EPS of more than $7 per share in 2024 remains on track, the carrier said. The company first unveiled that target in December 2021, so investors will be satisfied to see it staying intact after an eventful year for the industry.
Write to Callum Keown at email@example.com