Delta Air Lines expects pricier fuel to eat into its bottom line this year.
Delta cut its 2018 profit outlook on Thursday as it prepares to slow its growth this fall. It expects filling up its planes with fuel will cost it $2 billion more this year compared with 2017.
Jet-fuel prices are up about 60 percent from a year ago, crimping airline profits even as travel demand remain robust. Airfares in some markets are climbing but not enough to offset the sharp climb in what is generally airlines’ second-biggest expense after labor.
Delta said it would reduce some underperforming service in the second half of the year. A lower supply of seats in the market help airlines raise prices. It’s a measure that analysts expect competitors to take as well, following the peak summer travel season.
“We have seen early success in addressing the fuel cost increase and offset two-thirds of the impact in the June quarter,” said Delta’s CEO Ed Bastian.
Demand remains strong and passengers appear willing to pay more to fly. The airline said an industry gauge of airfares rose 4.6 percent in the second quarter.
That may not be enough to counter the higher costs. Delta expects to earn between $5.35 and $5.70 a share in 2018, down from a forecast it made in January of $6.35 to $6.70 a share, a reduction it said was due to more expensive fuel prices.
Delta’s second-quarter net income fell 14 percent to $1.03 billion, or $1.47 a share, from $1.19 billion, or $1.62 a share, a year ago. The airline’s fuel bill was up 40 percent in the second quarter from a year ago.
Delta’s adjusted earnings per share of $1.77 topped Wall Street estimates of $1.72 a share, according to Thomson Reuters.
Revenue the three months ended in June, rose 10 percent from the year-ago period to $11.78 billion, compared with analyst expectations of $11.72 billion.
Delta shares were up less than 1 percent in morning trade. Its stock is down 10 percent in 2018 and other airlines have lagged the broader market’s less than 4 percent gain this year. American Airlines‘ shares fell to a nearly two-year low on Wednesday after the airline cut its revenue outlook.