By Rajesh Kumar Singh and Shivansh Tiwary
CHICAGO (Reuters) -Delta Air Lines forecast on Friday that 2025 profit would exceed Wall Street expectations thanks to robust demand for premium travel and improved pricing power, and its share price jumped.
It also reported higher-than-expected fourth-quarter profit and forecast stronger earnings for the current quarter.
Delta's shares hit an intraday record high and were up nearly 11% in mid-day trade. Shares of rivals United Airlines and American Airlines (NASDAQ:AAL) were up about 5% and 3%, respectively.
Demand for high-end travel has been booming since the pandemic, with travelers willing to pay higher fares for more comfortable and swanky seats. Delta, which has positioned itself as the nation's premium airline, has been among the biggest beneficiaries.
The U.S. carrier's premium ticket revenue has been growing faster than main-cabin ticket revenue and is projected to exceed it by 2027. In the December quarter, premium revenue growth outperformed main cabin by 6 percentage points.
A sharp reduction in airline seats in the domestic market, which plagued carriers last summer, has driven up ticket prices and bolstered the industry's earnings outlook.
The trend helped Delta post higher unit revenue, a proxy for pricing power, in the December quarter, despite a slowdown in travel spending around the time of the U.S. presidential election in November.
"Across the industry, carriers are taking action to improve their financial health, creating an increasingly constructive backdrop," CEO Ed Bastian told analysts on an earnings call.
Airline fares rose at their fastest pace in 20 months in November on the back of a limited supply of seats. This has rendered a propitious backdrop for the industry's earnings, with J.P. Morgan analysts calling it a "new golden age" for U.S. airlines.
Higher ticket prices, however, have raised the risk of hurting the appetite for travel. Delta played down those worries, saying fares were not too high to take a toll on consumer demand.
A strong U.S. dollar is also helping the industry's cause as it has made overseas trips more affordable for U.S. travelers. Delta said it expects the transatlantic market to produce a record profit this year.
"The U.S. consumer is financially healthy and continues to prioritize spending on experiences," Bastian said.
Delta said the Los Angeles wildfires have led to a decline in sales, but are not expected to have a significant impact on its earnings.
The company expects earnings in excess of $7.35 a share this year, the highest in its 100-year history, compared with analysts' expectation of $7.22 per share, according to LSEG data. The company reported an adjusted profit of $6.16 a share in 2024.
Citi analyst Stephen Trent (NS:TREN) called the Atlanta-based carrier's 2025 outlook "very encouraging."
Delta forecast an adjusted profit in the range of between 70 cents and $1 a share for the quarter through March, compared with analysts' expectation of 77 cents per share, according to data compiled by LSEG.
It reported an adjusted profit of $1.85 per share in the December quarter, topping the $1.75 analysts estimated.