By Rajesh Kumar Singh
CHICAGO (Reuters) -Delta Air Lines on Thursday warned of a hit to its fourth-quarter revenue, saying consumers want to be home around the upcoming U.S. presidential election and are holding off discretionary spending.
Still, the Atlanta-based carrier said the current quarter is shaping up to be one of the most profitable fourth quarters in its history due to improved pricing power as well as strong holiday travel bookings.
Delta said the Nov. 5 presidential election is expected to shave 1 percentage point from its unit revenue in the December quarter. Some analysts said the hit is worse than their estimates.
"The U.S. election turned out to be a larger headwind that most expected," said TD Cowen analyst Thomas Fitzgerald.
Delta said the election-related uncertainty would weigh on travel demand for two weeks around Nov. 5, but bookings were expected to pick up in the weeks after.
"As we've seen historically, domestic travel demand is impacted in the weeks surrounding the election," Delta's President Glen Hauenstein told analysts on an earnings call, adding revenue trends were "significantly better" in October and December than in November.
Those comments helped Delta's shares pare losses in mid-day trade. They were down about 0.1% at $50.78.
The company expects an adjusted profit of $1.60 to $1.85 per share in the quarter through December, compared with analysts' expectations of $1.70 per share, according to LSEG data.
Its overall revenue is estimated to be up 2% to 4% in the quarter from a year ago on the back of a 3% to 4% increase in capacity.
Delta said the measures taken by U.S. airlines to moderate capacity improved its pricing power across all geographies in the third quarter. It expects the trend to continue in the December quarter.
An excess supply of airline seats in the domestic market during the summer travel season had forced carriers to discount fares to fill their planes, hurting their earnings.
U.S. airlines have moderated capacity since then. Annual domestic seat growth has slowed to 1.5% in October and November from 5.5% in July, according to analysts at BofA.
Capacity adjustments as well as a 25% year-on-year decline in jet fuel prices in North America have bolstered the industry's earnings outlook, driving up airline shares.
The NYSE Arca Airline index is up 25% since early August, outpacing an 8% jump in the S&P 500 index. Delta's shares have also gained more than 30%.
The U.S. carrier reported an adjusted profit of $1.50 per share in the September quarter, lower than the $1.52 estimated by analysts, mainly due to mass flight cancellations following a global cyber outage.
A software update in July by global cybersecurity firm CrowdStrike (NASDAQ:CRWD) triggered system problems for Microsoft (NASDAQ:MSFT) customers, including many airlines.
The disruptions persisted at Delta even as they subsided the next day at other major U.S. airlines. It canceled about 7,000 flights over five days, disrupting the travel plans of 1.3 million customers.
The company said on Thursday the disruptions led to a 45 cent-per-share hit to its third-quarter profit.