ii view: tariff headwinds make Delta Air Lines adjust course

First-quarter results to 31 March  

• Revenue up 3.3% to $12.9 billion
• Adjusted earnings up 2% to 46 US cents per share
• Adjusted net debt of $16.9 billion, down $1.1 billion from late December
• Dividend of 15 US cents per share, unchanged from the previous quarter

Guidance: 

• Expects second-quarter revenues to either fall by 2% or grow by 2% 

Chief executive Ed Bastian said:

“With broad economic uncertainty around global trade, growth has largely stalled. In this slower-growth environment, we are protecting margins and cash flow by focusing on what we can control. This includes reducing planned capacity growth in the second half of the year to flat over last year while actively managing costs and capital expenditures.” 

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ii round-up:

Major US airline Delta Air Lines Inc (NYSE:DAL) today stepped back from planned capacity growth in the second half of its financial year, as its moved to reduce costs in the face of increased tariff led uncertainty.

Revenue for the second quarter to late June is expected to come in anywhere between a 2% retreat to a 2% gain, with management now lacking confidence to reaffirm previously detailed annual sales and earnings predictions.   

Shares in the S&P 500 company rose 7% in early US trading having come into these latest results down 40% year-to-date. That’s worse than a 21% fall for British Airways owner International Consolidated Airlines Group SA (LSE:IAG). The S&P 500 is down 15% in 2025. 

Delta carried more than 200 million passengers in 2024. Revenue in the first quarter to 31 March rose 3.3% to $12.9 billion, driving adjusted earnings up 2% to 46 US cents per share and ahead of Wall Street forecasts of 38 cents per share. 

Group adjusted net debt fell $1.1 billion from late December to $16.9 billion with the airline expecting to repay at least $3 billion of debt during 2025 as it continued to strengthen its investment grade balance sheet.

Delta predicts second quarter earnings somewhere between $1.70 and $2.30 per share. That compares to $2.01 a year ago.   

Second-quarter results are likely to be announced early to mid-July.  

ii view:

Tracing its roots back to 1928, Delta today employs over 100,000 people. Headquartered in Atlanta, Georgia, the airline operates across nine US hubs, flying up to 5,000 peak-day flights to more than 290 destinations in more than 50 countries. Domestic US flights generated its biggest slug of revenue during 2024 at 70%. That was followed by Atlantic flights at 17%, flights to Latin America at 7% and those to the Pacific region the balance of 5%.  

For investors, trade tariffs now overshadow the outlook, with management not offering any full-year sales or profit estimates. Net debt of $16.9 billion compares to a stock market value of $24.6 billion and likely remains elevated following the pandemic. Geopolitics cannot be overlooked, with potential for conflict overseas. A forecast dividend yield of just under 2% is less than over 3% at rivals IAG and Deutsche Lufthansa AG (XETRA:LHA), while airline industry emissions and climate change considerations also warrant consideration.  

On the upside, management is taking quick action to prepare for reduced customer demand if a trade war escalates. The price of global economic indicator oil is down around a fifth in 2025, potentially feeding into lower fuel costs. A return to brisk business from the pandemic has boosted group cashflows allowing a reduction of net debt, while Delta’s fleet is being pushed towards more fuel efficient and climate friendly aircraft.  

In all, sizeable exposure to the world’s biggest economy, the USA, will likely keep the shares of interest to many. That said, raised global economic uncertainty may see investors taking a wait-and-see approach for now. 

Positives: 

• Diversity of geographical locations
• High focus on costs

Negatives:

• Heightened geopolitical tensions 
• Many factors outside of management control

The average rating of stock market analysts:

Buy