Delta faces jet-fuel jitters even as it sees strong travel demand

By Tomi Kilgore and Claudia Assis

Air carrier's stock drops despite upbeat quarterly results

Delta's profit dropped as the air carrier absorbed the highest quarterly fuel expense in its history.

Worries about jet-fuel prices clouded Delta Air Lines' outlook on Friday.

Delta's stock (DAL) dropped after the air carrier reported second-quarter earnings that beat expectations and revived its full-year guidance, which had been absent from the previous report.

The company absorbed "the highest quarterly fuel expense in our history," CEO Ed Bastian said during a call with analysts following the earnings report, but he added that there was "sustained strength and demand" for air travel as people continue to prioritize "experiences."

The airline did point to strong revenue trends, Raymond James analyst Savanthi Syth said in a note. The guidance, however, was based on last week's oil prices, as is customary, she said.

Oil prices rose this week as hostilities between the U.S. and Iran again flared. Jet fuel is the second largest expense for an airline, after labor.

Reflecting some of those worries, Delta's stock dropped more than 2% in recent morning trading, reversing a premarket gain of as much as 3.9% seen soon after the results were released. Delta shares were trading about 8% below their record closing price of $93.66, reached on June 30.

Delta was not alone: Airline and other travel-related stocks fell on Friday, bucking the broader equity-market trend. The U.S. Global Jets exchange-traded fund JETS was down nearly 1%.

Delta's adjusted fuel expenses jumped 77% to $4.41 billon, and fuel price per gallon rose 75% to $3.93, even after the company's refinery helped reduce costs by 11 cents per gallon. Nonfuel costs were up 8.2% to $11.09 billion, the company said.

Hurt by the surge in costs, adjusted net income, which excludes one-time items, fell 25.8% to $1.03 billion, while adjusted earnings per share declined to $1.56 from $2.12. That beat the FactSet EPS consensus of $1.49 and EPS guidance provided in April of $1 to $1.50. In the first quarter, EPS of 64 cents topped expectations for 58 cents.

For the current quarter, Delta expects EPS to rise to between $2 and $2.50, up from $1.71 a year ago. The reinstated full-year guidance calls for adjusted earnings between $6.50 and $7.50 a share. On the call with analysts, Delta executives declined to signal expectations for 2027, saying it would be "premature" to do so and noting that jet-fuel prices remain elevated.

Delta's continued investment in premium seats was still paying off, as revenue from premium tickets rose 17%, with 25% growth in premium corporate sales.

The gap between main-cabin revenue growth wasn't that far behind at 8%, marking a "meaningful acceleration" from first-quarter growth, analysts at UBS said in a note.

On the call with analysts, Delta executives said that the company is "still in the early stages" of further fare segmentation, describing the launch of that strategy into its premium products as "a great benefit for the consumer."

-Tomi Kilgore -Claudia Assis

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07-10-26 1218ET