Delta Air Lines shares fell as much as 3.5% early in the US cash session after the carrier slashed its full-year earnings forecast as soaring jet fuel costs squeezed margins. The cut isn't totally unexpected given today's jet fuel prices, but it serves as a warning: Delta owns a refinery that helps cushion the refining crisis blow, suggesting smaller carriers without that in-house refining buffer face even greater pressure.
The Atlanta-based carrier now expects adjusted earnings of $5.10 to $5.60 a share this year, down from a July forecast of $6.50 to $7.50. The new forecast lines up with the Bloomberg Consensus estimate of $5.44 this year.
Adjusted third-quarter earnings were $1.72 a share, below the Bloomberg Consensus estimate of $1.82. Adjusted revenue rose 16% to $17.6 billion, roughly in line with consensus estimates.
"I wouldn't call that a surprise to anyone, it's all because of higher fuel prices," CEO Ed Bastian said of the new forecast. "If this continues to go higher for longer, which I think it will, as the premium airline in the industry we have the best ability to be able to price for that."
We pointed out earlier this year that Delta operates an in-house refinery called Trainer Refinery. Monroe Energy (a Delta Air Lines subsidiary) officially operates the 185,000 to 190,000 barrels per day refinery. It's situated along the Delaware River in Delaware County, Pennsylvania.
Jefferies analyst Sheila Kahyaoglu told Bloomberg Television earlier that "the refinery has about a $1 billion benefit to this year, so it is providing a bit of a boost for them."
"But higher fuel will eventually eat into consumer demand," Kahyaoglu added, "and remain a major headwind for all carriers."
Delta is the only US airline that operates a major refinery, suggesting other carriers face a difficult operating environment amid sky-high jet fuel prices.
The earnings cut sets a difficult backdrop for United Airlines, American Airlines and Southwest Airlines, which report later this month.
Delta Air Lines shares fell as much as 3.5% in the early US cash session.
The broader airline index fell about 1.5%.
US air travel remains resilient ...
... in the face of high jet fuel prices crimping carrier margins.