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Delta Shares Fall 10 Percent on Dismal Outlook

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Thursday, 03 January 2019 12:07 PM

Shares of Delta Air Lines Inc. dropped 10 percent on Thursday, after the U.S. carrier warned fourth-quarter unit revenue would be slightly below its prior forecast due to the lower-than-expected improvement in last-minute fares booked by travelers.

The No.2 U.S. airline said it now expects total revenue per available seat mile - a closely followed measure of airline performance - to rise about 3 percent, compared with the 3.5 percent growth it forecast earlier.

"While close-in yield momentum continues, the pace of improvement in late December was more modest than anticipated," Delta said.

Shares of bigger rival American Airlines Group Inc. fell 11 percent to $29.2, while smaller rivals United Continental Holdings Inc., Southwest Airlines Co., and JetBlue Airways Corp. were down 5-7 percent in morning trading.

The broader U.S. markets fell sharply after Apple Inc.'s rare sales warning added to fears of a global slowdown.

“The unit revenue guide-down is the second time Delta lowered RASM forecast in the past two months,” Cowen & Co analyst Helane Becker said in a note.

“Investors are concerned that RASM will continue to weaken in 2019, although we believe other airlines are not necessarily seeing the same pressure as Delta.”

Becker, rated 5 stars by Refinitiv for estimate accuracy on Delta, lowered her price target to $65 from $67, but maintained an “outperform” rating.

Atlanta-based Delta (DAL) also said it expects fuel price per gallon to be in the range of $2.38 to $2.43, about 10 cents below its earlier guidance.

In the past, airlines have competed away gains from lower fuel by rewarding fliers with lower fares.

“With oil trending lower in recent months, investors are worried this time will not be different,” said Becker.

Airlines also take advantage of lower fuel costs to add more flights and seat capacity, a measure that can also drive down unit revenue.

Delta last month forecast 2019 revenue and profit below analysts’ estimates.

Oil prices decline on swelling oversupply, volatile markets

The airline said it expects revenue to rise about 4-6 percent in 2019, compared with an average 5.6 percent increase forecast by Refinitiv data.

The company’s profit estimate of $6-$7 per share also fell short of average expectation of $6.70.

© 2019 Thomson/Reuters. All rights reserved.

   
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Shares of Delta Air Lines Inc. dropped 10 percent on Thursday, after the U.S. carrier warned fourth-quarter unit revenue would be slightly below its prior forecast due to the lower-than-expected improvement in last-minute fares booked by travelers.
delta, shares, stock, outlook
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2019-07-03
Thursday, 03 January 2019 12:07 PM
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