Delta Air Lines Anticipates Pricing Surge Amid Slower Capacity Growth

Delta Air Lines announced that its pricing power will improve significantly starting in August as U.S. airlines reduce seat capacity growth, which has been pressuring fares. Despite a lower-than-expected profit forecast for Q3, Delta leadership expressed confidence in the industry's financial health. The company also faces potential revenue impacts due to the Olympics in Paris.

Delta Air Lines on Thursday announced that its pricing power will 'significantly' improve starting August as U.S. carriers begin to slow down seat capacity growth in the domestic market, easing discounting pressures.

The comments followed the Atlanta-based airline's forecast of a lower-than-expected profit for the third quarter, as excess industry capacity has dampened airfares in the lower end of the market.

'We are encouraged by actions the industry is taking,' CEO Ed Bastian told analysts during an earnings call. He noted that seat growth is decelerating, with an increased focus on better financial performance, improving Delta's stock, which recovered from a 10% drop to close down 5.4% at $44.30.

Rivals United Airlines and American Airlines were nearly 5% down, and Southwest Airlines fell 3%. European competitors like Lufthansa and British Airways saw a decline of 1% to 2%.

Despite airlines experiencing a summer travel boom with over 3 million travelers passing through U.S. airport security on July 7, overcapacity has undermined pricing power. Major airlines scheduled about 6% more seats domestically than a year ago, according to Cirium data.

While Delta's revenue from main cabins remains flat, premium cabin revenue rose by 10% year-on-year. TD Cowen analysts suggested that Delta's earnings might raise concerns about the industry's health, pressuring low-cost carriers to cut capacity.

Delta executives downplayed these concerns, stating that airlines are swiftly responding to the oversupply situation. They expect domestic unit revenue to positively inflect in September as capacity growth moderates. Delta also anticipates a significant hit to revenue due to the Paris Olympic Games this summer but reaffirmed its profit forecast for 2024.