FINANCE | Delta sees air travel boom nearly doubling its 2023 earnings

Delta Air Lines Inc. on Wednesday lifted its fourth-quarter earnings forecast and offered an upbeat outlook for next year as it expects travel-hungry customers to fill planes despite mounting economic worries, sending its shares higher.

U.S. carriers are enjoying the strongest consumer demand in three years. Reopening of pandemic-closed borders as well as a strong U.S. dollar are encouraging more Americans to travel overseas, while office reopenings are boosting corporate travel demand. 

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Delta's Chief Executive Ed Bastian told a gathering of Wall Street analysts that consumers are estimated to spend $30 billion on travel next year and that demand was not likely to wane any time soon.

"I don't think it's going to run out for an extended period of time," Bastian said. "People love to travel."

As a result, the Atlanta-based carrier said it expects profit to nearly double next year. It forecast an adjusted profit of $5 to $6 per share for 2023, up from an estimated $3.07 to $3.12 per share for this year.

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That is well above analysts' estimates for profits of $4.80 a share for 2023 and $2.89 in 2022, according to a Refinitiv survey. That helped push Delta shares up 2.5% to $34.27 in afternoon trading.

CFRA Research analyst Colin Scarola called Delta's financial targets "very realistic," and played down the economic backdrop as not so "dire."

He said Delta's profit goal for next year is about 20% below what the company earned in 2019. "They're trying to hit 80% of peak net income four years later in a much larger economy, which doesn't strike me as overly optimistic."

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In its investor update, Delta said it expects 15% to 20% year-on-year revenue growth and to generate more than $2 billion in free cash flow next year, enabling further debt reduction.

Non-fuel costs are projected to decline next year as the company expects to fully restore its network to pre-pandemic level, resulting in a better utilization of its resources.

The company also upgraded its earnings estimates for the current quarter. It now expects to post an adjusted fourth-quarter profit of $1.35 to $1.40 per share, up from its $1.00 to $1.25 per share forecast issued in October.

The bullish forecast comes as a worsening economic outlook coupled with high inflation and a 17-year low U.S. personal savings rate had sparked concerns about consumer demand. The NYSE Arca Airline index has fallen about 30% this year, compared with a 16% decline in the broader S&P 500 index.

Booming demand has helped carriers mitigate higher fuel and labor costs through higher ticket prices, while the slowing global economy more recently has led to a fall in oil prices, providing some much needed relief to airlines.

With Delta and other airlines offering big pay raises to pilots, however, the industry's labor bill is set to increase.

Airline executives are looking to pass along the increased costs to customers.

Delta also reiterated its goal to generate an adjusted profit of over $7 per share and return to investment grade metrics in 2024.

Source: Reuters

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