Delta Air Lines, headquartered in Atlanta, appears to be on track for further success in profitability, service quality, and prestige. Delta’s management team disclosed the company’s fourth-quarter earnings for 2024 on Friday morning, and they greatly above analysts’ estimates.
Delta Air Lines stock skyrocketed after the announcement, closing 9% higher than the previous day, marking the best single-day gain in recent memory.
Legacy airlines like Delta have performed admirably over the last two years, with income from cobranded credit card partnerships and luxury cabins reaching all-time highs.
Post-pandemic travel booms have resulted in higher ticket costs for the most in-demand routes, and more passengers are ready to pay for premium seats, which range from extra-legroom seats in the economy cabin to premium and business class cabins as well.
The airline sector has a history of cyclicality, with profitability fluctuating over time. Delta has been the industry leader in terms of sustained profitability for the past 10 years, and it appears to be on track to continue doing so, according to the most recent earnings reports.
The carrier has a stranglehold on the premium market’s upper tier, with its American Express credit card agreement often regarded as one of the most valued on the market today.
Prices skyrocketed due to bullish projections.
One of the key reasons Delta’s stock soared so drastically on Friday was not only that the airline posted higher-than-expected earnings, but also that its forecast for first-quarter earnings this year above analyst expectations.
Furthermore, the airline’s CEO, Ed Bastian, made a bold assertion that 2025 will be the carrier’s most successful fiscal year on record, which sparked interest and boosted investor confidence in the stock.
Nonetheless, many people are afraid that such language may be overly optimistic, which could hurt the airline in the long run if it is unable to deliver. While Delta had a great 2024, it has been gradually losing ground to its main competitor, United Airlines, which has been neck-and-neck with it in the premium travel market.
Despite a strong year, United Airlines, not Delta, returned the most earnings to investors in 2024, which many have interpreted as a hint that Delta’s status as industry leader may be fading.
According to CNBC, investors in United Airlines stock have achieved year-over-year gains of over 140%, while Delta shares have gained by over 60% in the same time period. In this article, we’ll look at the elements driving the recent significant surge in Delta stock prices, as well as why others believe such confidence is exaggerated.
A closer look at the earnings announcement that began it all.
Delta plans to earn more than $4 billion in free cash flow in the first four quarters of 2025, up 18% from the same period in 2024 and lying in the center of its target range of $3 to $5 billion. The business expects adjusted earnings per share of $7.35 in 2024, which also exceeds analyst projections.
Analysts predicted earnings per share of $1.75 in the three months leading up to the end of 2024, but they exceeded expectations at $1.85. Similarly, the company’s total fourth-quarter sales was $14.44 billion. This exceeded the predicted total by more than $250 million, indicating that the corporation had a particularly successful holiday season.
While Delta’s recent performance exceeded analyst forecasts, the company’s expected revenue improvements for 2025 were similarly astounding. The company expects revenues to rise by 7% to 9%, compared to 5% predicted by growth analysts at big institutions.
The business announced similar predictions for its first-quarter profits per share, which it anticipates would be between 70 cents and $1, exceeding analyst expectations of roughly 5 cents lower. Bastian was clearly delighted about the company’s announcement, sharing the following sentiments with financial news outlet CNBC:
“We’re feeling good as the new year begins. Consumers continue to favor experience above things.”
Proactive Investors believes that Delta’s choice to release such unrealistic growth figures is motivated by a number of factors. There are the apparent immediate justifications, such as the company’s enormously valuable credit card partnership and more popular premium cabin products.
Analysts have also identified additional strengthening of the US dollar against currencies such as the pound sterling and the euro as major drivers of future development.
Delta’s transatlantic summer routes are among the most popular in the whole aviation sector, and the carrier’s ability to sell tickets on these trips will most likely be aided by rising demand for travel from the United States to an increasingly affordable Europe.
This is not to imply that the carrier’s loyalty program and strategic alliances did not contribute to its recent strong financial success.
The airline’s collaboration with American Express generated an outstanding $2 billion in revenue in the fourth quarter, a 14% increase year on year, aided by ongoing demand in premium credit cards with superior in-flight perks and lounge access. Revenue from premium cabin tickets increased by 8% in the fourth quarter to $5.2 billion, while main cabin ticket revenue increased by only about 2%.
Small warning signs and the airline’s United issue
There were clearly some warning indications in the airline’s financial reporting that suggested the market’s confidence in the company’s financial prognosis for 2025 was unduly rosy.
For instance, the airline’s profit dropped 59% to $843 million in the final three months of the year, compared to the same period in 2023. Payroll expenses, which increased by around 7% to $942 million, were subsequently found to be the primary cause of this.
With pilot shortages afflicting the industry, negotiating pilot contracts becomes increasingly tough year after year, and Delta’s captains and first officers are among the highest compensated in the business. The airline’s passenger income per available seat mile also fell by about 18 cents, or 2% year on year.
Between 2023 and 2024, the carrier’s overall revenue per available seat stayed relatively steady. These two figures represent the amount of revenue generated per seat every mile flown.
United Airlines’ outstanding financial performance poses Delta’s largest and most serious competitive challenge. With its Polaris business class growing increasingly popular among wealthy Americans and the company’s credit card program becoming more rewarding for passengers, United is targeting Delta Air Lines’ two main income sources during the last two years.
United is determined to fight its Atlanta-based competition for the top rank in the business. The airline plans to significantly increase capacity on regional routes while also broadening its premium services. The airline plans to expand its network by adding flights to low-demand cities such as Faro, Portugal, and Palermo, Italy.
So, what’s the bottom line regarding Delta’s financial expectations and the ensuing market reaction?
United had a very excellent year in 2024, and the airline is definitely catching up to Delta on many key indicators. Nonetheless, Delta remains bullish, reassuring investors on Friday that it will maintain strong growth estimates and daring objectives for financial performance by 2025.
Given Delta’s great performance in the fourth quarter of 2024, it is unsurprising that the airline has anticipated continued growth in 2025. If the airline fails to fulfill its aims or falls behind rival United, its stock prices and investor confidence may suffer.