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Delta’s 2019 forecast helps send airline stocks lower

By DAVID KOENIGDecember 13, 2018

Delta Air Lines said Thursday that its profit will rise next year but not as much as Wall Street expected, and that helped push airline stocks lower.

Forecasts of slower global economic growth are weighing on airlines because a slowdown would likely hurt demand for travel, which has been strong throughout 2018.

Delta’s forecast also demonstrated how volatile fuel prices can whipsaw airlines, sometimes in ways that aren’t obvious.

Fuel is among an airline’s biggest expenses, so naturally pricier fuel raises carriers’ costs. At the same time, however, airlines find it easier to boost fares when oil and fuel prices are rising — meaning that airline revenue rises too.

Delta predicted that its revenue will rise in 2019, but — as with profit — not as much as analysts predicted. CEO Ed Bastian said Delta was prepared to predict “significantly higher” revenue back when it looked like fuel prices would also be much higher. Fuel-price forecasts have come down with the drop in oil prices that began two months ago.

Executives at Delta, the nation’s second-biggest airline behind American, said at an investor conference in New York that they can manage through economic conditions because the airline has diverse sources of revenue. Besides fares and fees, Delta makes money through a lucrative credit card deal, hauling cargo, and performing maintenance work for other airlines.

Delta also gets more money from passengers in first- and business-class seats by selling them an array of fares and options. Bastian said “premium products” now account for 30 percent of Delta revenue, double the percentage of six years ago. In the same time, the percentage of revenue from passengers in the main cabin has fallen from 65 percent to 48 percent, he said.

At the investor meeting, Delta said it will earn adjusted profit of $6 to $7 per share next year. The midpoint, $6.50, is below the $6.70 consensus of industry analysts, according to a survey by FactSet.

Delta said revenue will rise between 4 percent and 6 percent. Again, the midpoint was below the 5.6 percent increase predicted by analysts.

The airline is spending $2 billion more on fuel this year than last, as prices surged through September. But with the drop in oil prices that started in October, Delta now expects its 2019 fuel bill to be $300 million lower than in 2018.

Shares of the Atlanta-based carrier fell $2.63, or 4.7 percent, to $53.64 in afternoon trading. American was down 4 percent and United was off 3 percent.

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David Koenig can be reached at http://twitter.com/airlinewriter

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