Delta lowers profit forecast after surge in fuel prices

Key Points
  • Delta lowers profit forecast for the second quarter to $1.65 to $1.75 a share from $1.80 to $2.
  • Airlines are enjoying strong demand, but it's getting more expensive to fly.
  • Carriers are grappling with higher fuel prices during the busiest travel season of the year.
Andrew Harrer | Bloomberg | Getty Images

A surge in fuel prices will likely eat into Delta Air Lines' profits this quarter, despite strong travel demand, the airline said Wednesday.

Delta said in a filing that it expects to earn $1.65 to $1.75 a share in the three months ending June 30, down from its forecast in April of $1.80 to $2 a share.

The airlines have been grappling with a jump in fuel prices, generally their second-largest expense after employee salaries.

Earlier this week, the International Air Transport Association, an industry group that represents most of the world's airlines, cut its profit outlook for airlines this year due to higher costs.

Delta said fuel prices are up about 50 percent over the past 12 months. That's enough to crimp profits even though the airline expects revenue growth of between 4 and 5 percent quarter from the year-earlier period, a narrower range from the 3 to 5 percent the airline forecast in April.

The timing of the fuel price increase is especially challenging for airlines because higher costs are coinciding with the busiest travel period of the year and carriers are hesitant to cut back on flying when demand is high.

Delta shares ended down 0.9 percent at $54.17, recovering from a more than 3-percent decline earlier in the session. American Airlines shares closed little changed, while United Airlines gained 1.5 percent.

Shares of Southwest Airlines lost 0.3 percent. The airline on Monday warned about a decline in bookings and revenue in the wake of an engine failure aboard one of its flights in April. One passenger died in the accident.

On Wednesday, Southwest said it carried close to 11.9 million paying passengers in May, an increase of more than 5 percent compared with the same month in 2017.