Published -June 27th, 2023 @ 4:45 PM (GMT+2)

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Delta Air Lines (NYSE:DAL) has recently raised its Q2 forecast, along with a full-year adjusted earnings estimate of $6 per share, thanks to a solid demand for travel and a preference among customers for more expensive fare classes. The company has projected adjusted earnings per share of $2.25 to $2.50 for Q2, up from the previous range of $2 to $2.25 a share. This positive trend is supported by the strong demand for travel, particularly for international trips, despite other sectors facing challenges due to inflation and other factors.

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Industry Challenges and Lower Fuel Costs

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The airline industry is currently contending with growth constraints because of air traffic controller shortages, delays in new aircraft, and a shortage of new pilots, which is helping to maintain firm fares. On top of this resilient demand, airlines are benefiting from jet fuel prices that are down about 30% from a year ago, further boosting their outlook.

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Premium Revenue

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Delta's revenue per available seat mile, a key measure of an airline's revenue generation capability, is predicted to rise by as much as 18% over last year. This is an upward revision from a previous forecast of 15% to 17% growth. Moreover, the airline's premium revenue is anticipated to reach about $19 billion this year, a 35% share of total revenue, up from a 24% share in 2014. This growth is primarily driven by customers' willingness to opt for more expensive seats, ranging from those with extra legroom to first class.

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The carrier's lucrative partnership with American Express credit cards is set to generate an estimated $6.5 billion this year, a significant increase compared to $4 billion in 2019. As a sign of growing confidence in its ability to generate free cash flow, Delta reinstated its quarterly dividend earlier this month, and also raised its estimate for free cash generation this year to $3 billion, up from $2 billion.

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Rising Delta Shares

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This optimistic outlook has led to a rise in Delta shares, with more than a 1% increase in early trading observed. Analysts believe that the updated earnings guidance could be a catalyst for solid gains in Delta's shares over the next 30 days, with the airline's shares already up about 31% this year

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