By Rajesh Kumar Singh and Deborah Mary Sophia
CHICAGO (Reuters) -Delta Air Lines said on Wednesday it expects the highest second-quarter revenue in its history thanks to buoyant demand for spring and summer travel and what it called the "most constructive backdrop" for the airline industry.
The Atlanta-based carrier forecast a strong profit in the current quarter after reporting better-than-expected earnings in the first quarter.
CEO Ed Bastian said Delta's core consumers are in a healthy position and travel remains a top priority for them. He also highlighted an acceleration in corporate travel spending as well as the efforts by airlines to protect their pricing power in key markets.
"This may be the most constructive backdrop that I've seen in my airline career," Bastian told analysts on a conference call.
Delta shares initially gained 4% before turning negative on Wednesday after hot inflation data that pressured the broader market. The shares, which have gained about 17% so far this year, were down 0.3% at $47.16 in afternoon trading.
The International Air Transport Association IATA expects 4.7 billion people to travel in 2024, compared with 4.5 billion in 2019. In the United States, passenger traffic is estimated to reach an all-time high this year, according to trade group Airlines for America (A4A).
Airline executives say consumers are cutting spending on goods in favor of experiences after the pandemic. Hybrid work arrangements are also allowing Americans to travel more, leading to a surge in spending on air travel, according to A4A.
Demand is particularly strong for premium travel, benefiting carriers like Delta, which is trying to attract travelers who are willing to pay for something other than just a seat.
"Generational shifts and evolving consumer preferences are driving secular growth in premium experiences," Bastian said.
Consumer demand is booming at a time when airlines are struggling with aircraft shortages, constraining their ability to supply more seats during peak travel periods, translating into stronger pricing.
Delta expects unit revenue - a proxy for pricing power - to be flat compared with last year in all geographies except Latin America.
It also reported an improvement in the U.S. market as its domestic unit revenue turned positive in the March quarter, with an improvement of 7 percentage points from the previous quarter.
"Despite all of the aircraft issues in the industry, demand is still healthy and Delta's guidance is reflecting that," said Christopher Raite, senior analyst at Third Bridge.
While Delta's operations are not impacted by Boeing (NYSE:BA)'s safety crisis, the airline said industrywide supply-chain constraints have forced it to keep flying older, less fuel-efficient jets and spend more on repairs. The company did not retire any aircraft in the last two years.
It forecast an adjusted profit of $2.20 to $2.50 per share in the quarter through June, compared with analysts' expectation of $2.23 per share, according to LSEG data. It expects to post an operating margin of 14% to 15%, with a 5% to 7% year-on-year increase in second-quarter revenue.
Adjusted profit for the first quarter was 45 cents a share, compared with analysts' expectations of 36 cents per share.