Delta Air (DAL.N) posted a bigger-than-expected loss for the first quarter on Thursday, hurt by lower average fares, while also forecasting a return to profitability later this year as more people get vaccinated and start traveling again.
Shares of Delta fell 3.7% in morning trade, as the company also said the average fuel price per gallon jumped 30% in the first quarter from the previous three months.
Air travel, stifled by the COVID-19 pandemic, is widely expected to rebound in the second half of 2021 as more people travel for leisure rather than business, likely limiting airlines from raising fares dramatically.
“As we head into the summer, we believe that the real pressure on domestic yields will come primarily from the lack of business travel,” Delta President Glen Hauenstein said on a call with analysts.
“To progress to the next leg of the recovery, we need corporate travel to return in earnest,” Hauenstein added.
Average fares dropped 14% in the first quarter ended March 31 from the fourth quarter, while the average fuel price per gallon rose to $1.87 from $1.45.
It also expects adjusted June-quarter revenue to fall between 50% and 55% from two years ago, with the midpoint of the outlook at $5.94 billion, below Wall Street’s estimate of $6.22 billion, according to IBES data from Refinitiv.
Delta said it hopes that the U.S.-UK travel corridor will open in early summer, likely aiding a profitable third quarter.
“The recovery still has a long way to go…and costs, notably oil, are on the rise,” Third Bridge analyst Peter McNally wrote in a note.
Total operating revenue fell 60.4%, while adjusted net loss was $2.26 billion, or $3.55 per share.
Analysts on average had estimated a loss of $3.17 per share on revenue of $3.91 billion.
Delta’s June-quarter adjusted pre-tax loss is expected to narrow to between $1 billion and $1.5 billion.