Delta Air Lines announced that soaring jet fuel prices due to the Iran war will add more than $2 billion to its costs in the June quarter, leading the airline to pull all planned capacity growth for the period. CEO Ed Bastian stated that uncertainty over the duration of the fuel price spike made it "imprudent" to provide an updated full-year outlook. The company expects adjusted earnings of $1.00 to $1.50 per share for the June quarter, with the $1.25 midpoint falling below analysts' average expectation of $1.41 per share.
Despite these challenges, Delta reported strong demand, with ticket sales showing double-digit growth year-over-year. For the March quarter, the airline posted adjusted earnings of 64 cents per share, surpassing analysts' expectations of 57 cents. It also achieved a record March quarter revenue of $14.2 billion, a nearly 10% increase over the previous year, driven by strong performance in premium, corporate, and loyalty segments. Delta aims to recover about 40% to 50% of the higher fuel costs in the second quarter and has raised checked-bag fees.
The capacity reductions will primarily target lower-revenue flying, such as overnight red-eye flights and some midweek services, cutting about 3.5 percentage points from its original plan. Bastian anticipates that the current fuel spike will accelerate structural changes in the airline industry, potentially separating stronger players from weaker ones. The airline benefits from its subsidiary refinery in Pennsylvania, which is expected to provide a $300 million benefit in Q2, up from $60 million in Q1.
Jet fuel was priced at $4.81 a gallon on Tuesday, a significant increase from about $2.50 before the February U.S.-Israeli strikes on Iran. Delta expects to pay approximately $4.30 a gallon in the June quarter. The company maintains that demand remains strong, particularly among higher-income travelers, and stated that it has yet to see any impact on demand from increased fares and fees.
