Surging fuel costs prompted yet another air carrier to cut its financial outlook Thursday, but airline stocks rallied as analysts looked to increased ticket pricing to balance out the effect going forward.
Delta Air Lines Inc. slashed its guidance range for 2018 per-share earnings to $5.35 to $5.70 from the previous estimate provided in January of $6.35 to $6.70, as the carrier now expects a $2 billion higher fuel bill this year.
For the second quarter, Delta said it paid an average $2.17 a gallon for fuel, above the estimate provided in April of $2.07 to $2.12, and well above the $2.01 it paid in the first quarter. For the third quarter, Delta is expecting to pay $2.32 to $2.37 a gallon.
Meanwhile, Delta’s stock DAL, +1.98% DAL, +1.98% DAL, +1.98% jumped 1.7% in afternoon trade, reversing a brief loss of as much as 1.4% at the intraday low, as second-quarter earnings topped forecasts. “We have seen early success in addressing the fuel cost increase and offset two-thirds of the impact in the June quarter,” Delta Chief Executive Ed Bastian said.
Rather than be concerned over the impact of higher fuel costs, analyst Helane Becker at Cowen was upbeat about how Delta was able to offset that increase, with “pricing trends” that were ahead of expectations and lowered capacity growth.
“Don’t complicate it; this is a good first step,” Becker said. “Delta’s primary focus going forward will be to overcome the rise in jet fuel costs by raising ticket prices.”
Other air carrier shares also rose, with the NYSE Arca Airline Index XAL, +1.86% surging 1.7%.
American Airlines Group Inc.’s stock AAL, +1.11% climbed 1.1%, to bounce off a near two-year low at the close on Wednesday. The 8.1% plunge on Wednesday came after the airline cut its outlook