Delta Cuts Its Profit Forecast as Jet Fuel Soars: What It Means for Holiday Airfares

Delta's numbers show why flying costs so much more this year, and why holiday trips may stay expensive.

Delta Air Lines said on Friday, Oct. 9, that it now expects to earn less this year than it had predicted, because soaring jet fuel costs are eating into its profits. The airline lowered its full-year adjusted earnings forecast to $5.10 to $5.60 a share, down from the $6.50 to $7.50 range it gave in July, according to Quartz and Delta's filing with securities regulators.

The surprising part is that passengers kept flying and paying more. Delta reported record revenue for the July-to-September quarter. The problem is that fuel costs climbed even faster than fares.

Record revenue, but fuel took a big bite

Delta's adjusted revenue for the third quarter was $17.59 billion, up 16% from a year earlier and a record for that quarter, according to StockTitan's review of the company's filing. Adjusted earnings came to $1.72 a share, roughly flat with $1.70 a year ago but below the $2.00 to $2.50 Delta had projected in July.

The culprit was jet fuel. Delta paid an average of $3.61 a gallon, up 60% from $2.25 a year earlier, and more than the roughly $3.15 it had assumed. Its adjusted fuel bill rose $1.58 billion to $4.14 billion for the quarter, about two-thirds of its total cost increase. Fuel prices have surged this year because of the U.S. war with Iran and disruptions to oil shipping.

Delta's shares ended Friday close to flat, according to Yahoo Finance, as investors weighed the strong demand against the weaker profit outlook.

Fares are climbing fast

To offset fuel, Delta has been charging more per seat. Its passenger yield, a measure of how much it earns per passenger per mile, rose 14%. Domestic yield rose 15%, even though the airline didn't add seats. Main cabin revenue per seat rose 17%, and planes were 86% full on average.

Looking ahead, Delta expects fourth-quarter revenue to rise about 20% while adding fewer than 2% more seats, including fewer main cabin seats. That math points to higher prices per seat for travel between October and December. Delta is assuming jet fuel will cost about $4.25 a gallon in the fourth quarter, even higher than in the third.

Delta isn't alone. Government data show U.S. airline fares rose 23.4% in the 12 months through August, compared with 3.4% for consumer prices overall, according to the Bureau of Labor Statistics figures cited by StockTitan. The travel app Hopper estimates average domestic round-trip fares at $402 for Thanksgiving, up 31%, and $452 for Christmas, up 23%.

What this means for your wallet

If you're planning to fly for the holidays, it may pay to book sooner rather than later. When airlines keep seat growth tight and fuel stays expensive, fares often climb as travel dates approach. A few strategies may help:

• Compare fares across nearby airports and flexible dates, since flying on a Tuesday or Wednesday is often cheaper.
• Set price alerts on a few routes so you know a good fare when you see one.
• Check whether airline miles or credit card points could cover part of the trip.
• Read the fine print on basic economy fares, since bag and seat fees can erase the savings.

If flying is out of reach this year, consider driving for shorter trips, hosting instead of traveling, or celebrating on a different date when prices are lower. Whatever you choose, set a firm holiday travel budget now so a pricey ticket doesn't crowd out bills or savings.

For investors, Delta's results are a reminder that airline stocks are very sensitive to fuel prices. Strong demand doesn't always turn into strong profits when costs spike.

This article is for education only and is not financial advice. Everyone's situation is different.