Two months ago, most airline executives were extremely bullish about the rest of 2021. A strong rebound in leisure demand led to packed planes and high fares during the summer peak season. Meanwhile, airlines saw growing signs that business travel demand would begin to recover in earnest after Labor Day.
Alas, the summer surge in U.S. COVID-19 cases and hospitalizations undermined this demand recovery. Last week, U.S. airline giants Delta Air Lines (NYSE:DAL), American Airlines (NASDAQ:AAL), and United Airlines (NASDAQ:UAL) all slashed their Q3 forecasts. However, Delta is set to record an adjusted profit for the quarter anyway, continuing its long run of outperformance.
Delta trims guidance
Two months ago, Delta Air Lines projected that third-quarter revenue would decline 30% to 35% compared with 2019 on 28% to 30% less capacity. This performance implied a low- to mid-single-digit decline in unit revenue from pre-pandemic levels.
Delta did anticipate that adjusted nonfuel unit costs would jump 11% to 14% relative to Q3 2019, largely because of the impact of lower capacity and costs of rebuilding the airline. Nevertheless, this outlook implied that Delta would post a solid quarterly profit, excluding the benefit from the final round of federal payroll support for airlines. For comparison, it posted an adjusted pre-tax loss of $881 million in the second quarter.
Image source: Delta Air Lines.
On Thursday, Delta Air Lines reduced its quarterly forecast. It now expects revenue to wind up near the low end of its initial guidance range — down 35% from 2019 — as the latest wave of the pandemic led to a pause in the business travel recovery. Delta also said it now expects adjusted nonfuel unit costs to rise 15%, largely because of increased labor costs.
On the flip side, the carrier reduced its fuel price estimate by about 6%, more or less offsetting the increase to its nonfuel cost outlook. As a result, Delta remains on…
