Taylor Swift boost fails to allay discounting fears at Delta

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Taylor Swift fans travelling to Europe for her concerts helped Delta Air Lines report record revenue levels in the second quarter but failed to allay fears about peak summer travel and the oversupply of seats.

The US carrier reported adjusted revenue of $15.4bn in the three months to the end of June, but its shares declined after its forecasts for the peak summer travel season fell short of analysts’ expectations, raising concerns that airlines will be forced to discount airfares.

Chief executive Ed Bastian acknowledged fares had declined from a year ago as US carriers have flooded the market with seating capacity. While Delta has been relatively insulated thanks to its revenue from first- and business-class travellers, its economy class revenues have been affected.

“In the domestic market, as a whole, capacity is up 8 per cent over last year, and we think that real demand this summer is probably in the 4 to 5 per cent range,” Bastian said. “So that 3 per cent of additional supply . . . is causing a lot of discounting in the lower-fare buckets,” he said.

Delta shares were 5.3 per cent lower at mid-afternoon in New York, dragging other carriers lower, after it forecast that adjusted earnings per share for the third quarter would be $1.70-$2, below analysts’ expectations.

Bastian said transatlantic travel was stronger than domestic travel in the second quarter, noting that some young US travellers were boarding flights to see pop star Taylor Swift play in Europe, where tickets were generally cheaper than in the US.

He also cited the strong dollar as a driver of trips between the US and Europe, as well as continued strong appetite for travel following the pandemic.

“Transatlantic is going really well,” Bastian said. “I think it is the desire after years of people feeling cooped up and not able to experience the world. We see it across all demographics.”

Still, tourists are avoiding Paris, deterred by the Olympic Games.

Carriers — including European operators — plan to fly 7.8 per cent more seats across the Atlantic in July than a year earlier, according to data from aviation analytics company Cirium.

But airlines are also facing investor concerns that there are too many seats on the market, particularly for US domestic flights.

“Oversupply in the domestic market and aggressive discounting look to be weighing on fares,” said analysts at TD Cowen.

Delta’s adjusted operating income dropped 9 per cent to $2.3bn compared with the second quarter of 2023. Last year marked a record, Bastian said, and the drop was more “stabilising at a high level”.

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