Delta (DAL - Free Report) started off the Q2 earnings season positively for the airline industry. The company’s earnings of $1.77 per share surpassed the Zacks Consensus Estimate by five cents—thanks in large part to stronger demand for air travel, which boosted revenues.
Although the company had a positive earnings surprise for the reported quarter, these are still uncertain times for the airline space. A central issue is fuel prices that continue to rise, forcing major airlines to decide how to offset the costs.
Delta was able to surpass estimates for Q2, but fuel prices have begun to take a negative toll on the airline and its future outlook. On Thursday, the company announced that its fuel bill will be $2 billion more this year than it was last year.
Delta also stated on Thursday that it will have to raise fares for travelers moving forward to counteract the spike. The company appears to be confident that the move will work. Regarding the fuel costs, CEO Ed Bastian stated, “We expect to be able to cover most if not all of it this year, by the end of the year.”
However, the high fuel bill may be causing more problems in the future than what CEO Bastian suggests, as the airline dropped its full year earnings outlook on Wednesday. Delta is now predicting that the 2018 earnings will be between $5.35 and $5.70 per share, much lower than the $6.30 to $6.70 forecast it gave earlier in January. In comparison, the Zacks Consensus Estimate for the current year is pegged at $5.69.
The attention now turns to United Continental (UAL - Free Report) , one of Delta’s main rivals and another major player in the airline industry. United is set to release its own second-quarter results next week on July 17.
Delta’s earnings results will be difficult for United to match, as the company also has to face the same burden of rising fuel prices.
There are also other issues looming for United in wake of its upcoming earnings report. In addition to higher fuel costs, United and the other conventional carriers, Delta and American Airlines (AAL - Free Report) , have to face competition from low cost carriers like Spirit (SAVE - Free Report) and Jet Blue (JBLU - Free Report) .
If United is forced to raise fares in similar fashion to Delta, then it will only make the lower priced fares of Spirit and Jet Blue more appealing to consumers. The low cost carriers are also more domestically focused, which puts them in a better position to face problems concerning macroeconomic and geopolitical tensions.
The main thing that United should hope for is that increased consumer demand from the summer travel period can provide the company’s revenue a significant boost, just like how it did for Delta.
United’s upcoming earnings report will be a key indicator to the current state of the airline space. Whether or not United can match Delta’s positive earnings surprise may reveal the extent to which major airline companies can deal with problems concerning fuel prices, global tensions, and competitors.
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