Delta warns weaker pricing power amid US shutdown

Bloomberg

Delta Air Lines Inc. said its ability to raise ticket prices is weakening and warned that the US government shutdown is eroding sales.
Less travel by federal employees and contractors is costing Delta about $25 million a month even as corporate and leisure travel remain strong, Chief Executive Officer Ed Bastian said. Revenue from each seat flown a mile, a gauge of pricing power, will rise no more than 2 percent this quarter, Delta said. That’s down from 3.2 percent in the previous three-month period.
The cautious forecast underscored investor skittishness after Delta sparked a rout earlier this month by warning that its grip on fares was weakening. The airline is predicting a 4 percent first-quarter increase in its seat supply, stoking concerns that earnings will suffer at US carriers as rising capacity crimps their ability to jack up ticket prices. That would be a boon for travellers — but a drag on airline profits.
“Corporate travel will be affected by the shutdown, and will be replaced with lower yielding leisure travel,’’ Helane Becker, an analyst at Cowen & Co, said in a note to clients. “Delta needs to see further revenue improvement to impress a skeptical investment community.’’
Delta was little changed at $47.71 in New York, as its biggest rivals climbed about 1 percent and the S&P 500 rallied. Delta fell 4.3 percent this year through Monday, while a Standard & Poor’s index of major US carriers declined less than 1 percent.
“People are just trying to get a sense for demand and whether it’s holding up, and Delta’s ability to adjust capacity if it doesn’t,” said Joe DeNardi, a Stifel Financial Corp analyst. “You have some mixed data points with regard to that.”
First-quarter adjusted earnings will be 70 cents to 90 cents a share, Delta said in a statement as it reported earnings. That trailed the 93-cent average of analyst estimates compiled by Bloomberg.
Delta also cited “currency headwinds” as likely to affect its performance in the first three months of the year, as well as the timing of Easter, which falls later in the second quarter than last year. For 2019 as a whole, the airline reaffirmed its 2019 profit forecast of $6 to $7 a share.
Delta’s fourth-quarter adjusted earnings rose to $1.30 a share, topping analysts’ expectations of $1.28. Revenue met the $10.7 billion estimated by analysts.
“The demand environment is solid and our cost base should be stable, resulting in improved earnings and cash flows,’’ Bastian said on a conference call with analysts and investors.
United Continental Holdings Inc is scheduled to report earnings after the close of trading, with other carriers set for next week.

Shutdown Impact
In addition to affecting ticket sales, the government shutdown is also threatening Delta’s plan to begin flights on January 31 on its new Airbus SE A220 jets and hampering its ability to put some other aircraft into service. Aviation regulators plan to recall thousands of furloughed safety inspectors so they can resume performing some routine activities, including clearing planes for airlines to add to their fleets.
Southwest Airlines Co also said it can’t move ahead with plans for flights to Hawaii until Federal Aviation Administration safety inspectors return to work.