Delta Lowers Outlook, Cites Decline in Consumer and Corporate Confidence

Delta Air Lines cut its first-quarter revenue and profit forecast due to an increase in economic uncertainty. 

“The outlook has been impacted by the recent reduction in consumer and corporate confidence caused by increased macro uncertainty, driving softness in Domestic demand,” Delta said in a regulatory filing on Monday. 

The carrier said its premium, international and loyalty revenues are still consistent with its first-quarter outlook. 

Delta expects its operating profit margin during the first quarter to increase to no more than 5%, down from its previous forecast of 6% to 8%. The carrier expects revenues to increase by no more than 4%, down from its previous projections of up to 9%. 

Delta is now expecting a revenue shortfall of $500 million for the first quarter.

“It’s not going backwards,” said Delta CEO Ed Bastian on CNBC. “But it’s not growing as fast as we were anticipating.”

Bastian added that the company saw a “pretty significant shift” in GDP sentiment in February. 

“As a result of that, we saw companies started to pull back in terms of corporate spending, started to stall, consumer spending started to stall,” he said. 

During the JPMorgan industrials conference, Bastian said Tuesday morning that the fatal American Airlines crash and an incident where a Delta plane crashed on landing also led to a dip in demand. All 80 passengers aboard the Delta flight survived.

"There's a whole generation of people traveling these days that didn't realize these things could happen," Bastian said at the conference. "They can. That's why safety is our first and foremost priority at all times."

Federal Government Layoffs and Tariffs Spook Economy

The weak forecast comes as some analysts are noting that economic uncertainty due to the mass layoffs in the federal government and potential tariffs could affect the airline industry. 

“While we continue to remain constructive on the supply backdrop — which we still believe is favorable — our attention has shifted to what appears to be an emerging economic ‘soft patch,’” Deutsche Bank said in an investor note on March 4. 

United Airlines chief financial officer Mike Leskinen noted during the Barclays industrials conference last month that government travel had “fallen off” since President Donald Trump’s inauguration. 

An investor note from Melius Research on March 2 said that government travel only makes up a small portion of airlines’ sales.

“The question is whether the weakness within the government sector will ripple throughout other parts of the economy,” wrote Melius Research analyst Connor Cunningham. “Hard to tell, but clearly there is growing uneasiness on how that might be contained.”

Bastian said at the JPMorgan industrials conference Tuesday morning that flights out of Washington, D.C. made up about 1% of Delta's sales.

"Well, less than 1% of our revenue comes from direct government and 4% of our revenue comes from Washington area," Bastian said at the conference. "It's the one area of the country that we're at least exposed. So I guess that's a benefit at this point in time."