Delta Earnings: Outlook Weak Despite Strong Industry Premium Traffic Trends
Delta Air Lines (DAL) has kicked off earnings season with a very solid second quarter profit. Though these numbers are good, it's the forward-looking numbers that have people spooked. The recovery may not be as strong as people thought, despite continued strength in premium traffic.
Delta says it expects the third quarter to look a lot like the second. That should be good, but you know how those crazy Wall Street folks get. They expected more, so now they're getting anxious. You would think that an airline making a profit at all would cause spontaneous celebration, but not on Wall Street.
Meanwhile, the International Air Transport Association (IATA) released its latest Premium Traffic Monitor and the news is all good. Premium traffic continues to come back and it's now only 10 percent below where it was before it fell off a cliff at the onset of the recession. Premium traffic yield is 15 percent below where it was, but it's still showing good growth.
So how is it that we end up with such conflicting pieces of information? Well, backward-looking data still looks solid. It was a very good second quarter and the third is shaping up to be good (if not as good) as well. But it's the uncertainly in the economy that has people scared.
The recovery from this last recession has gone quite nicely, but numbers have started to look shaky everywhere. Airlines live and die on razor-thin margins, so a stall in the recovery could have a big impact. A double-dip recession could plunge the airlines back into big losses.
For management, that means caution should continue to rule the day. Keeping capacity steady is important. Monitoring fare levels is key to make sure that fares don't go too high so that they kill demand. It's a tricky balancing act, and having Wall Street breathing over your shoulder looking for any hint of weakness doesn't make it any easier.
We're in a strange time where massive profits are coming in for the quarter yet optimism is tempered. The good airlines need to explain this clearly to their employees so that they can fully understand what's going on here. The others will simply find the rhetoric ramping up as labor tries to get a piece of the pie. Unfortunately, the pie may not be around for long.
Related:
- Airline Coach Travel Is Back to Its Pre-Recession Levels, Thanks in Part to Premium Cannibalization
- Premium Air Traffic Surpasses Previous Year for First Time Since 2008
- Flying In Style: Premium Air Travel Rebound Begins