Delta Air Lines has slashed its profit forecast despite achieving record third-quarter revenues, as it predicts a surge in the price of jet fuel resulting from the Iran conflict will cost it an extra $6bn this year.
Revenues to the end of September rose 16 per cent year on year to $17.6bn as deep-pocketed consumers and business travellers shrugged off higher air fares and sought out perks including upgraded lounges and premium seating.
But the US carrier’s net income declined by almost half over the same period as its fuel expenses shot up by 69 per cent. US jet fuel hit $4.71 a gallon on Thursday — its highest point since April, amid signs that a brief revival in shipping through the Strait of Hormuz is fading.
As a result, Delta has cut its full-year profit forecast by almost a quarter to an earnings-per-share range of $5.10-$5.60, down from guidance of $6.50-$7.50 just three months ago.
Erik Snell, Delta’s chief financial officer, said the downgraded forecast was entirely due to the price of fuel being higher than the market expected in July, and that there was “reason to believe [it would remain] higher for longer for a period of time”.
Delta’s forecast is that the average price of jet fuel for the fourth quarter of the year will be $4.25 a gallon. That compares with a price of about $2.50 per gallon just before the US and Israel launched their military assault on Iran at the end of February.
Unlike European airlines, US carriers do not hedge jet fuel, which has left them more exposed to the soaring prices this year.
Snell said Delta had mitigated its fuel costs this year by around $700mn as a result of its ownership of an oil refinery that makes it less reliant on buying from the open market. It has also cut losses by reducing capacity and raising fares, as well as expanding its premium offerings.
“Equalling our earnings that we had last year with a 60 per cent higher fuel bill is truly incredible,” he said.
Delta shares recovered to close fractionally lower on Friday, but had dropped as much as 3.7 per cent in morning trading.
Additional reporting by Peter Campbell