Delta Air Lines anticipates a significant improvement in its pricing power starting in August, despite facing discounting pressure that has impacted its third-quarter profit outlook. This positive outlook comes amidst a slowdown in seat capacity growth across the domestic U.S. airline industry, a move expected to alleviate pressure on airfare prices.
The Atlanta-based carrier recently announced a lower-than-expected profit forecast for the third quarter, citing excess industry capacity that has dampened airfares, particularly at the budget end of the market. However, Delta executives expressed optimism about the industry's health, highlighting airlines' swift response to the oversupply situation.
Delta expects its domestic unit revenue, a key metric that reflects pricing power, to show a positive inflection in September. This coincides with the industry's projected moderation in seat capacity growth, which is expected to transition from high-single digits to low-single digits. The airline also anticipates its annual seat capacity growth to be around 5%-6% in the third quarter, compared to an 8% increase in the second quarter.
While Delta acknowledges some short-term challenges, the company did warn about a potential $100 million revenue hit between June and August due to travelers avoiding Paris during the summer Olympics. Overall, Delta's outlook suggests a cautious optimism for the airline industry. While short-term discounting pressure has impacted Q3 profits, the industry's efforts to manage seat capacity growth are expected to lead to a rebound in pricing power in the coming months. This positive trend, coupled with Delta's proactive measures, suggests the airline is well-positioned to navigate the current market dynamics.