Shares prices of Delta Air Lines are tanking after the Atlanta-based carrier sharply revised its profit forecast downward, blaming eroding consumer confidence and growing economic uncertainty over the US economy.
Delta Air Lines Cuts Profit Forecast Citing Diminished Domestic Demand, Lower Consumer Confidence, And Uncertainty Over Economy
After markets closed on Monday, Delta filed an 8-K (regulatory form) reflecting updated guidance on profit expectations. For the first quarter of 2025, Delta now projects:
- Revenue growth of 3-4% (down from 7-9%)
- Operating margin of 4-5% (down from 6-8%)
- Earnings per share of $0.30 – 0.50 (down from 0.70 – 1.00)
Delta explains:
The outlook has been impacted by the recent reduction in consumer and corporate confidence caused by increased macro uncertainty, driving softness in Domestic demand.
At this point, it has not seen any adverse changes to premium cabin, international, or loyalty growth:
Premium, international and loyalty revenue growth trends are consistent with expectations and reflect the resilience of Delta’s diversified revenue base.
The news has hurt Delta’s stock price, with share prices down over 11% in after-hours trading (as of press time):
What Is Going On Here?
Everyone may live in their own echo chamber, but there is one reality and one truth. However, I think it’s too early to assign “blame” over this poor guidance. Instead, I think we are seeing many factors coming together in what amounts to a perfect storm:
- waning of revenge travel
- new contracts for pilots and flight attendants that are unsustainable
- economic uncertainty created by the new administration
- a settling of the economy that precedes the current administration
- reckoning of the crazy amount of debt Americans hold as individuals and as a nation
- destruction of loyalty by airlines and credit card companies, particularly the devaluation of points
- overcapacity on international routes based on earlier revenge travel years
- overall uncertainty of consumers in general
Are some factors more to blame than others? Likely, but I think the above factors heavily play into what is going on here.
Later this morning, Delta and other carriers will present at the JP Morgan Industrials Conference. Will United Airlines and American Airlines announce similar weakness, or is this uniquely a Delta issue? My hunch is we will see similar guidance from United and American.
If America is enering a recession and market correction, I think the vast networks of the “Big 3” will provide some cushion, but a worsening economy may also present a repevie for budget carriers liek Sprit and Frontier if more Americans flock to “cheaper” otoins in the wake of growing economic storm clouds.
CONCLUSION
Delta has revised revenue and profit forecasts downward, blaming reduced domestic demand caused by sinking consumer confidence and economic uncertainty.
I’m not surprised…I predicted this last week with all the uncertainty over the on-again, off-again tariff policy and the general breakdown of historical alliances in the West. But assigning blame at this point is premature: we will have to see how this unfolds.
Later today, we should get a better idea when we hear from United and American as well.
image: Delta Air Lines
As someone who works on Wall Street, the writing was on the wall since around 1.5 years ago and it was just a matter of when this bubble was going to pop regardless of the current administration. However, if both the market and the economy corrects itself this year, we’re looking at a long bull run and this is just going to be a temporary setback, especially for hospitality/travel industries.
Not a Wall Street guy, but agree with this assessment. The rampant inflation had to be stopped and that’s tough to do without slowing the entire economy. If you recall, the insane inflation of the late 1970s wasn’t quelled until after we went through a deep recession in 1981-1983 (more or less). Then once the recovery started, the economy absolutely exploded.
It’s unlikely to be as extreme a downturn as we had then, but it was still overdue after what’s been going on fiscally.
Inflation isn’t going to be stopped anytime soon, debt is too high. Market will increase nominally but not in real terms for some time.
Expect median housing to hit $1 million by 2040.
The 1970’s are back!
Nothing the current administration is doing is slowing inflation at all. In fact, the current administration is increasing inflation through tariffs and drastically cutting consumer and business confidence. There is a direct cause and effect between the administrations erratic policies and the destruction of the American economy.
Volker drastically raised rates to bring down inflation during the Regan era.. Trump is trashing the economy and increasing inflationary pressures at the same time.
This is the largest factor. new contracts for pilots and flight attendants that are unsustainable. They were negotiated based on the fact that we’d never have a downturn. Now we do and the union work groups are totally unprepared for the coming layoffs. It will happen. Also the secondary factor of most loyalty programs taking an axe will start having the impact of people traveling less and only when needed no longer to chase meaningless status. Chickens coming home to roost.
“This is the largest factor. new contracts for pilots and flight attendants that are unsustainable. They were negotiated based on the fact that we’d never have a downturn.”
Only from management’s perspective. Because once the downturn happens they’ll demand cuts, get them, and once again labor will have to subsidize America’s cheap airfare. From Labor’s perspective, these pay raises and contracts represent years of work WITHOUT A CONTRACT. During which the CEOs and executives never turned down an increase in their compensation packages.
“Now we do and the union work groups are totally unprepared for the coming layoffs. It will happen.”
Can’t wait to hear you complain about the decrease in service and how it’s the fault of the overworked, under compensated workers left behind after those layoffs pay to keep the fat cats getting fatter.
Assigning blame to top line revenue misses is pretty easy. Trump inherited a fantastic economy and flushed it down the toilet with one of the most idiotic trade wars of all time. He fully admits he’s trashing the economy too.
Now for the rest of the P&L, that’s the more complicated story.
What a pathetically simplistic take.
I agree.
It’s a simple situation. Trump is a fat buffoon that bankrupts everything business he touches, and now he is wrecking everyone’s 401k in record time
And yet you fail to provide any thesis of your own to explain the consumer and corporate confidence imploding at the exact time trumps idiotic inflationary trade war started.
Have been selling stock and buying gold/bonds since the orange man took office. This is going to be bad if he keeps it up – lets be honest the dude changes his mind all the time. So if he backs off the trade war nonsense I think it would go a long way. But thus far all his actions (firing federal workers, deportations, and tariffs are all pro-inflationary/negative growth) Hopefully some travel deals to be had though.
It’s a buying opportunity in the markets….just not on Airline Stocks. Buy a low cost S&P 500 fund like Vanguard, contribute monthly, sit back and watch your wealth grow. It’s truly the best way for the average American to become semi rich in their lifetime.
Not great advice for most here because you already know this but teaching it to the youth you know is the greatest gift you can give them. What is the saying….no one plans to fail, they fail to plan.
Given your rampant racism and xenophobia over the years at LALF the idea of you teaching our youth anything is quite frightening,
None of this is surprising. It mirrors what’s happening to Spirit except Delta has international travel, corporate travel, and a lucrative card program to make up for declining lower-end domestic consumer demand.
Excellent analysis, Matthew.