Delta expects 2023 earnings to nearly double thanks to ‘robust’ travel demand

Delta Air Lines says the travel boom isn’t over.

The airline expects its adjusted earnings to nearly double to $6 a share next year, beating analysts’ estimates. It predicts a 15% to 20% jump in revenue in 2023 from this year, expected to bring in roughly $45.5 billion.

Free cash flow is likely to grow from more than $2 billion next year to more than $4 billion in 2024, a sharp turnaround from 2020 when Delta posted a record loss. Delta plans to pay down more of its debt over the next two years.

Delta and other airline executives in recent weeks have been upbeat about a recovery in travel demand, despite warnings from other industries of impending economic weakness.

“We’ve seen our recession,” CEO Ed Bastian said in an interview. “Consumers are prioritizing their spending, where they make choices and prioritizing investing in themselves and experiences.”

On Wednesday, Delta raised its fourth-quarter earnings forecast to a range of $1.35 to $1.40 per share from its previous outlook of $1 to $1.25 per share. It expects total revenue to be 7% to 8% higher than the fourth quarter of 2019, before the Covid pandemic.

Delta shares rose nearly 2.8% on Wednesday to close at $34.31, while the broader market fell. Delta shares are down 12% this year.

The US airline has returned to profitability this year thanks to a sharp recovery in travel demand and consumers’ willingness to pay higher fares, which has helped carriers more than offset increased costs such as fuel.

Airlines cut some routes and were forced to reduce their planned capacity growth, which kept ticket prices stable. Supply chain and labor constraints have slowed the delivery of new aircraft, and airlines continue to struggle with a shortage of trained pilots.

Bastian told CNBC that business travel has recovered about 80% to 2019 levels, with demand from smaller businesses even stronger than before the pandemic.

“It will never go back to what it was, but there will be new forms of travel that will complement it,” he said.

Some carriers have warned of slowing growth or weaknesses in business.

United Airlines Chief executive Scott Kirby said last week that demand for business travel had “plateaued” but that revenue was still growing. Alaska Airlines said in a statement on Tuesday that demand was good for the fourth quarter, although it noted a “moderate softening in corporate travel bookings”.

And JetBlue Airwayssaid the “very strong” last-minute demand it expects in December “has materialized below expectations.”

But for Delta, bookings remain strong through early 2023, Bastian said.

Delta has been more conservative than some of its competitors in returning capacity, but the Atlanta-based carrier aims to restore its network to 2019 levels next summer.

U.S. airfares have eased from peaks reached earlier this year, but prices are still well above 2021 levels.

Rebuilding capacity will likely “take some of the pressure off the rate mix,” but strong demand will continue to boost revenue, Bastian said.