Delta Air Lines warns of revenue hit from weak travel demand ahead of U.S. presidential election

Delta Air Lines DAL-N on Thursday warned of a hit to its fourth-quarter revenue, saying consumers want to be home around the upcoming U.S. presidential election and are holding off discretionary spending.

Still, the Atlanta-based carrier said the current quarter is shaping up to be one of the most profitable fourth quarters in its history due to improved pricing power as well as strong holiday travel bookings.

Delta said the Nov. 5 presidential election is expected to shave 1 percentage point from its unit revenue in the December quarter. Some analysts said the hit is worse than their estimates.

“The U.S. election turned out to be a larger headwind that most expected,” said TD Cowen analyst Thomas Fitzgerald.

Delta’s shares declined about 1.4 per cent at $50.13 in morning trade. Shares of rivals United Airlines UAL-Q, American Airlines AAL-Q and Southwest Airlines LUV-N were also down between 1 per cent and 2 per cent.

The company expects an adjusted profit of $1.60 to $1.85 per share in the quarter through December, compared with analysts’ expectations of $1.70 per share, according to LSEG data.

Its overall revenue is estimated to be up 2 per cent to 4 per cent in the quarter from a year ago on the back of a 3 per cent to 4 per cent increase in capacity.

The airline said the election was expected to temporarily slow down travel spending, but bookings for the holiday travel season remained strong.

“It’s just a temporary pause for consumer activity,” CEO Ed Bastian told CNBC. “People like to be home during the election period.”

Delta said the measures taken by U.S. airlines to moderate capacity improved its pricing power across all geographies in the third quarter. It expects the trend to continue in the December quarter.

An excess supply of airline seats in the domestic market during the summer travel season had forced carriers to discount fares to fill their planes, hurting their earnings.

U.S. airlines have moderated capacity since then. Annual domestic seat growth has slowed to 1.5 per cent in October and November from 5.5 per cent in July, according to analysts at BofA.

Capacity adjustments as well as a 25 per cent year-on-year decline in jet fuel prices in North America have bolstered the industry’s earnings outlook, driving up airline shares.

The NYSE Arca Airline index is up 25 per cent since early August, outpacing an 8 per cent jump in the S&P 500 index. Delta’s shares have also gained more than 30 per cent.

The U.S. carrier reported an adjusted profit of $1.50 per share in the September quarter, lower than the $1.52 estimated by analysts, mainly due to mass flight cancellations following a global cyber outage.

A software update in July by global cybersecurity firm CrowdStrike triggered system problems for Microsoft customers, including many airlines.

The disruptions persisted at Delta even as they subsided the next day at other major U.S. airlines. It cancelled about 7,000 flights over five days, disrupting the travel plans of 1.3 million customers.

The company said on Thursday the disruptions led to a 45 cent-per-share hit to its third-quarter profit.