:max_bytes(150000):strip_icc()/GettyImages-2223798482-36227b0aa2e8409ab1fdc362a312fdcf.jpg "Delta Kicks Off Airline Earnings Tomorrow. Here’s What to Watch For.")
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Key Takeaways
- Delta Air Lines and United Airlines are expected to report relatively strong third-quarter performance due to robust international, corporate and premium ticket sales, analysts said.
- Other airlines may have struggled more as consumers take fewer domestic flights in the main cabin, analysts said.
Delta is slated to be the first airline to report third-quarter earnings this Thursday. Its results may also be the best in the industry, analysts say.
“Premium” carriers that rely more on international and first-class tickets, such as Delta Air Lines (DAL) and United Airlines (UAL), are performing well, analysts said. Meanwhile, budget carriers are seeing sluggish demand from less affluent Americans. Many are using promotions to sell domestic main cabin fares, while trying to make more money on flying passengers rather than on credit-card programs.
“Premium carriers widen their lead as earnings recession continues to bite,” Deutsche wrote in a research note this week. “We expect half the industry to post losses.”
What This News Means to Consumers
Affluent customers’ spending makes up a bigger share of the economy than it did a few decades ago, according to Moody’s Analytics. This has led companies to focus more on things like higher-end cars and flights, while sometimes paring back options for those on a budget.
Delta expects third-quarter revenue to come in 2% to 4% above revenue a year earlier. Premium sales are going well; corporate travel improved; and in the current quarter, Delta started to make revenue on domestic fare, though not in the main cabin, President Glen Hauenstein recently said.
“There’s a lot of consternation, I think, at the bottom end,” of the market, Hauenstein said at a conference last month, according to a transcript made available by AlphaSense. We’re at the very top, we believe, of the income bracket. So, our average consumer is well over $100,000 [in income] a year … and that seems to be good.”
United’s revenue per available seat mile (RASM), a closely watched industry metric, will likely be negative year-over-year in the third quarter, in part because of flight caps this spring at Newark Airport, the company said. RASM is likely to improve toward the end of the year thanks to “fantastic” international demand and strong corporate sales, CFO Michael Leskinen said at a conference last month.
But business has been tough for carriers that focus on domestic coach fares as less-affluent Americans watch their spending, analysts said. This has weighed on shares of Sun Country Airlines Holdings (SNCY), Alaska Air Group (ALK), Allegiant Travel Company (ALGT) American Airlines Group (AAL) and JetBLue Airways Corp (JBLU), Morgan Stanley said. The industry is, generally, cutting domestic flight capacity in an attempt to curb the use of discounts, analysts said.
“Nary a day goes by that our inbox is not in receipt of an airline promotion,” Deutsche Bank analysts wrote. Bargain-basement fares “may have worked in the 1980s and 1990s … but are today’s anachronism given the present cost of operating an airline.”
Airlines may get some relief from Spirit trimming capacity by about 25% while in bankruptcy proceedings, Deutsche Bank said.
Spirit’s streamlining will likely benefit Frontier Group Holdings (ULCC), but not enough to compensate for lax demand from “the low end consumer,” Bank of America said this month. Frontier, which is adding routes, expects third-quarter RASM to grow by a mid- to high single-digit percent from last year, the company said on its last earnings call.
Sun Country, another budget carrier, stands out because of success moving into new lines of business: running charter flights and transporting cargo for companies like Amazon (AMZN), analysts said. Sun Country forecast revenue being flat to up 4% compared to the third quarter of 2024.
