By Rajesh Kumar Singh
CHICAGO, Oct 9 (Reuters) - Delta Air Lines cut its annual profit forecast by nearly a quarter at the midpoint on Friday as surging fuel costs overwhelmed strong travel demand and higher ticket prices, sending its shares down 3% in premarket trading.
The downgrade underscores a growing challenge for US carriers: whether passengers will absorb further fare increases if fuel prices remain elevated. Airlines have already raised fares substantially this year, and analysts warn further increases could
test travelers' willingness to keep spending.
The Atlanta-based carrier expects its annual fuel bill to rise by roughly $6 billion from last year. Its third-quarter fuel expense jumped 62% year-on-year to $4.1 billion, more than $500 million above what it anticipated in July.
"All of it's fuel," Delta Chief Financial Officer Erik Snell told reporters when asked what drove the forecast cut, citing increases in both crude oil and refined jet fuel prices since the summer.
Delta now expects adjusted annual earnings of $5.10 to $5.60 a share, down from the $6.50 to $7.50 it forecast in July. The new midpoint of $5.35 is below analysts' average estimate of $5.46, according to LSEG. It forecast $4.5 billion in adjusted pre-tax profit for 2026.
Third-quarter adjusted earnings of $1.72 a share narrowly missed analysts' average estimate of $1.76, according to LSEG. Its adjusted operating margin fell to 9.4% from 11.1%.
Delta is the first major US airline to report third-quarter earnings, with rivals United Airlines, American Airlines and Southwest Airlines due to report later this month.
HIGHER FARES
US airlines spent $42.9 billion on fuel for scheduled flights in the first eight months of 2026, nearly $13.2 billion more than a year earlier, despite using slightly less fuel, according to the Bureau of Transportation Statistics.
Strong demand and limited growth in seats have helped carriers pass higher fuel costs on to passengers. US airline fares rose an average of about 25% from a year earlier in the five months through August, according to the Bureau of Labor Statistics' consumer price index.
With fuel prices remaining elevated and planned industry capacity growth set to accelerate in the fourth quarter from the third, analysts are watching whether carriers, including Delta, can raise fares further without discouraging travel.
Deutsche Bank analysts expect the industry to recover a smaller share of higher fuel costs through revenue measures in the fourth quarter, with full recovery not expected until early 2027.
Delta said demand remains strong. With almost 60% of the fourth quarter already booked, it expects revenue growth of about 20% from a year ago, Snell said.
It forecast fourth-quarter adjusted earnings of $1.15 to $1.65 a share, with the $1.40 midpoint roughly in line with analysts' average estimate of $1.39, according to LSEG.
REFINERY ADVANTAGE
Delta has an advantage over other major US airlines: its ownership of a refinery outside Philadelphia that Snell expects to generate $700 million in profit this year.
"We have a refinery that gives us an offset, a partial offset to fuel prices that no one else does," he said.
Bought in 2012, the Monroe refinery processes crude oil into jet fuel and other products. Delta still pays market prices for fuel transferred to its airline operations, but retains the refining profit within the company.
That helps when the gap between crude and refined fuel prices widens, increasing costs for airlines buying from outside suppliers. The protection varies with refining margins, however, and the refinery can lose money when those margins weaken.
But the refinery can only partly cushion the impact of higher fuel prices. Even with a projected refinery benefit of 40 cents a gallon, Delta expects its fuel cost to rise to $4.25 a gallon in the fourth quarter from $3.61 in the third.
Snell said fuel costs were expected to stay elevated for some time.
"Ultimately, fuel will come down. When that is, we're not exactly sure," he said.
(Reporting by Rajesh Kumar Singh; Editing by Jamie Freed and Pooja Desai)
