Delta Air Lines surpassed expectations for its third-quarter results, outperforming the “big four” U.S. airlines. The carrier reported earnings of $2.03 per share on revenue of $14.6 billion, exceeding analysts’ projections of $1.95 per share on revenue of $14.5 billion.
Strong Performance and Market Response
In premarket trading on Thursday, Delta’s stock rose by 1.5%, reflecting the positive response from the market to its impressive financial performance. This success sets the stage for an optimistic start to the earnings season for major airlines.
Wall Street’s Focus on Demand and Fuel Costs
As Delta prepares to release its earnings report before the opening bell, Wall Street is closely monitoring two key concerns: demand and fuel costs. These factors will play a critical role in shaping analysts’ and shareholders’ assessment of the company’s financial health, and they are particularly crucial for the four major U.S. carriers.
Projected Growth and Revenue
Analysts surveyed by FactSet anticipate that Delta will report earnings of $1.95 per share for the third quarter, an increase from $1.51 per share during the same period last year. Furthermore, quarterly revenue is estimated to reach $14.5 billion, surpassing last year’s $12.8 billion.
Contemplating Demand and Fuel Costs
The questions at the forefront of everyone’s mind revolve around demand and fuel costs. With summer coming to an end and travelers feeling the pinch of inflation and higher fares, will Delta witness a decline in demand? Additionally, given the recent upswing in oil prices and the spike following the Hamas attack on Israel, will fuel costs remain elevated in the upcoming quarter or even for the next year?
Stay tuned for more analysis on Delta’s earnings as the situation unfolds.
The Connection Between Fuel Costs and Weight-Loss Drugs
Fuel costs continue to be a pressing concern for airlines, impacting their profitability. One unforeseen solution to this problem lies in weight-loss drugs. These pharmaceuticals, such as Ozempic and Wegovy produced by Novo Nordisk (ticker: NVO), have the potential to significantly reduce fuel expenses for airlines.
Analysts at Jefferies have emphasized the importance of weight in relation to fuel efficiency. As the weight of an aircraft increases, so does the amount of fuel required to support flights. In light of this, airlines have made it a priority to find ways of eliminating excess weight and reducing costs.
United Airlines (UAL) serves as an example to demonstrate the potential savings these drugs could bring. According to analyst Sheila Kahyaoglu, if the average passenger weight were to decrease by 10 pounds, United Airlines could save approximately $80 million annually, which amounts to nearly 1% of their overall fuel expenses. Kahyaoglu estimates that this reduction in weight would increase United Airlines’ annual earnings per share by around 20 cents. It is worth noting that this benefit is not exclusive to United Airlines and is expected to have a similar impact across the industry, as affirmed by the Jefferies analysts.
While the effects of obesity drugs may not be immediately evident in Delta’s numbers, analysts are looking towards the airline for more information on the subject. The introduction of these medications has created much discussion during the third-quarter earnings season. An example that highlights their significance can be seen with PepsiCo (PEP), a food company that recently reported its earnings.
However, it is important to recognize that despite the potential benefits of weight-loss drugs, the discussion surrounding higher fuel costs due to rising oil prices and the future demand remains at the forefront. Delta and United, among the four major U.S. carriers (including Southwest and American), have been identified as the strongest performers by analysts at Citi, primarily due to their positive demand trajectories. Although Citi has reiterated its Buy ratings for Delta and United, they have slightly adjusted their price targets for all four airline stocks.
