Delta forecasts weak first-quarter profit on rising labor costs

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By Rajesh Kumar Singh

CHICAGO (Reuters) - Delta Air Lines Inc (NYSE:DAL) on Friday forecast first-quarter profit below analysts' estimates on a rise in labor costs as U.S. carriers go all out to improve staffing levels amid robust travel demand.

Delta's shares fell 4.2% in premarket trading, dragging rivals United Airlines, American Airlines (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV) down about 1%.

U.S. carriers are enjoying the strongest travel demand since the start of the pandemic, boosted by reopening of closed borders, a strong U.S. dollar and rising corporate travel.

But airlines have had to shell out more money to attract and retain pilots and cabin crew after many were let go during the pandemic.

Delta said on Friday it expects non-fuel unit costs to rise 3% to 4% in the first quarter from a year earlier.

The company has also offered a 34% pay hike to its pilots in a new contract, Reuters reported last month, which is expected to become a new "benchmark" for the industry.

A worsening economic outlook has sparked concerns about consumer spending, but travel demand remains strong and exceeds the pace of flight capacity growth, keeping ticket prices high.

"As we move into 2023, the industry backdrop for air travel remains favorable and Delta is well positioned to deliver significant earnings and free cash flow growth," Chief Executive Ed Bastian said.

The company forecast first-quarter revenue would be 14%-17% higher than 2019 on capacity that is 1% lower. Delta expects earnings of 15 cents to 40 cents per share, below estimates of 55 cents, according to Refinitiv IBES data.

The airline reiterated the full-year profit forecast issued last month.

For the fourth quarter, adjusted profit came in at $1.48 a share, above analysts' estimates of $1.33. The company reported $12.3 billion in adjusted revenue.

Delta's earnings come a day after rival American Airlines Group Inc lifted its profit outlook for the December quarter. American Airlines is due to report its quarterly results on Jan. 26.

Airlines don't expect travel demand to slowdown anytime soon. Delta has said it expects consumers to spend $30 billion on travel this year.