By Rajesh Kumar Singh
CHICAGO, April 8 (Reuters) - Delta Air Lines on Wednesday forecast lower-than-expected profit for the second quarter and said it was too early to update its full-year outlook, citing uncertainty caused by a run-up in jet fuel prices linked to the Iran war.
The Atlanta-based airline said it was removing all planned capacity growth from the June quarter, which would cut supply by about 3.5 percentage points from its original plan.
Delta added its capacity growth plans now have a "downward
bias until the fuel environment improves."
The U.S. carrier's outlook highlights the growing strain fuel costs are placing on airlines after the Middle Eastern conflict sent shockwaves through energy markets.
Since late February, jet fuel prices have nearly doubled, marking the industry's first major post-pandemic stress test by inflating costs, disrupting schedules and pushing the limits of what travelers will pay.
Fuel typically makes up about a quarter of airline operating costs, leaving carriers especially exposed when prices jump faster than fares, with tickets often sold weeks or months in advance.
The surge has also raised the prospect of an industry shakeout, with weaker airlines more likely to cut capacity, take on debt or absorb deeper losses, while stronger rivals continue investing and gaining market share.
Delta CEO Ed Bastian warned the fuel price spike would accelerate structural change across the airline industry.
"It's going to separate the winners and force the weaker players to take some pretty significant steps to either get better or something else will happen," Bastian said.
United Airlines CEO Scott Kirby has said his carrier is modeling for Brent crude prices to rise as high as $175 a barrel and remain above $100 through 2027. There were, however, some early signs of relief on Tuesday after U.S. President Donald Trump said a two-week ceasefire agreement had been reached with Iran.
To conserve fuel and protect margins, airlines have begun trimming schedules, particularly on lower-margin routes and less time-sensitive travel. Since March 13, U.S. carriers have reduced planned domestic capacity growth by more than half a percentage point.
Delta expects adjusted earnings of $1.00 to $1.50 per share in the June quarter. The midpoint of the forecast, $1.25 per share, is below the $1.41 analysts expect on average, according to LSEG.
FUEL COSTS ADD $2 BILLION BURDEN
Delta expects to pay about $4.30 a gallon for jet fuel in the June quarter, adding more than $2 billion to its fuel costs compared with a year earlier.
So far, airlines have relied on strong travel demand to recoup part of the higher fuel bill through fare increases, baggage fees and other ancillary charges.
Bastian said Delta aims to recover about 40% to 50% of higher fuel costs in the second quarter as it lifts fares. He, however, said that fully recapturing the increase would take longer.
Delta also expects a $300 million benefit from its refinery in the second quarter, up from about $60 million in the March quarter as refining margins widened.
BAGGAGE FEES RISE ACROSS U.S. CARRIERS
On Tuesday, Delta announced plans to raise checked-bag fees, following similar moves by United and JetBlue Airways.
Bastian signaled the higher fees could stick. "At this level of fuel, it's hard to call anything temporary," he said.
He also played down concerns that higher fares and fees could weigh on demand, saying ticket sales have risen at a double-digit pace year on year over the past month, with momentum carrying into the second quarter.
Higher-income travelers remain resilient and Delta has yet to see any impact on demand, he added.
For the March quarter, the airline reported adjusted earnings of 64 cents per share, topping analysts' expectations of 57 cents.
In January, Delta forecast full-year adjusted earnings of $6.50 to $7.50 per share, but Bastian declined to provide an update given the uncertain outlook. Analysts now expect $5.40, according to LSEG.
(Reporting by Rajesh Kumar Singh; Editing by Jamie Freed)
