Third-quarter earnings fell 26% at Delta Air Lines, which struggled to overcome a global technology outage that led to thousands of flight cancellations, and indications that growth in air travel is beginning to slow.
Delta earned $971 million, down from $1.31 billion a year earlier. Revenue rose slightly, but spending on labor, airport landing fees and its Delta Connection regional affiliate grew much faster, the Atlanta airline said Thursday.
The airline said, however, that it will return to year-over-year earnings growth in the October-December quarter. Delta figures to benefit from a pullback in flying by lower-cost competitors, and the airline is seeking compensation for the July outage that cost it $500 million.
CEO Ed Bastian said bookings for Thanksgiving and Christmas are strong, but he expects a brief drop in travel spending before the holidays while Americans fret about the outcome of the November elections.
Air travel has bounced back from the pandemic to record levels. There are signs, however, that the recovery may be losing momentum.
More travelers are showing up at U.S. airports than last year, but the trend has grown weaker each month since spring. In May, the Transportation Security Administration screened 6.9% more travelers than it did a year earlier. By September, the increase had dwindled to 1.7%, and the first nine days of October showed a 3.2% decline from last year.
Delta reported that its customers flew 3% more in the July-through-September quarter than a year earlier, but on average they paid 3% less per mile.
That is because airlines have lost pricing power on economy-class tickets. Low-fare carriers in particular added flights so fast this year that they cut prices to fill seats. Some of them — notably Spirit Airlines, which is trying to renegotiate debt to avoid bankruptcy — have cut their schedules for the last few months of 2024.
Bastian said the supply of seats now matches demand, “and that equilibrium should provide a good platform for the airlines to perform nicely.”
Delta said its third-quarter profit excluding special items was $1.50 per share, just below the $1.52 per share average forecast among analysts in a FactSet survey.
Revenue rose 1%, to $15.68 billion, boosted by strong demand for premium seats and services, but operating expenses climbed 6%.
Labor, which accounts for 30% of Delta spending, jumped 13% after the airline negotiated a new contract with union pilots and gave pay raises to nonunion flight attendants and other employees.
The July technology outage that started with a faulty software update from cybersecurity firm CrowdStrike to Microsoft computers led Delta to cancel 7,000 flights over several days. Other airlines hit by the outage fixed their systems much more quickly, and the U.S. Department of Transportation is investigating why Delta lagged.
As Delta previously disclosed, it lost $380 million in revenue from the canceled flights and incurred $170 million in extra spending, much of it to reimburse stranded passengers. On the other hand, Delta saved $50 million in fuel by canceling so many flights.
Delta has sparred with CrowdStrike and Microsoft over blame for the cancellations. Delta is seeking compensation, and both sides have hired lawyers for the fight.
Delta forecast that fourth-quarter earnings will be between $1.60 and $1.85 per share. The midpoint of that range falls slightly below analysts’ forecast of $1.76 per share, according to FactSet.
The airline extended its seasonal transatlantic flying to take advantage of ongoing demand for travel to Europe, but its forecast also assumes a slight dip in revenue around the Nov. 5 U.S. elections, which is already showing up in booking data.
“It’s a phenomenon we have seen over the last few national elections,” Bastian said in an interview. “You’re going to see people off decisions until they understand what the outcome of the election is. That can be whether it’s going on a vacation or purchasing an appliance or making a home purchase.”
Then he added, “The holiday periods look very strong though.”
Shares of Delta Air Lines Inc. were nearly unchanged in late-morning trading.