Why Delta Stock Is Losing Altitude Today

Pricing pressure is raining on the summer travel season.

Delta Air Lines (DAL -5.41%) reported second-quarter results that were roughly in line with estimates, but the airline is damping expectations for the important summer vacation season.

Investors are looking for alternative accommodations, sending shares of Delta down as much as 10% at the open and down 6% as of 10:30 a.m. ET.

Flying into headwinds

The airline industry enjoyed a period of robust demand following the pandemic, but with interest rates and inflation on the rise and concerns growing about the health of the consumer there are questions about how long the skies will remain crowded.

Delta kicked off airline earnings season by reporting $2.36 in earnings per share on revenue of $16.7 billion, a mixed result compared to the $2.37-per-share and $15.5 billion estimates. Premium fares led the way, up 10%, and corporate travel demand grew at a double-digit rate.

Net income was down 30% year over year, but Delta did generate $2.7 billion of free cash flow in the first six months of the year. The airline put that cash to work repaying more than $2 billion in debt, and also said it was increasing its dividend by 50% in the third quarter.

Is Delta stock a buy?

Questions remain about how long the good times can last. Delta said it sees third-quarter earnings coming in at $1.70 to $2 per share, below the $2.06-per-share consensus. Oversupply in the domestic market and aggressive discounting appears to be weighing on fares.

CEO Ed Bastian provided reason for hope during the post-earnings conference call, saying that revenue trends appear to be improving heading into August. He said that he’s encouraged by the actions the industry appears to be taking to adjust capacity and improve financial performance.

Delta has been a standout operator in part because of its success focusing on corporate and premium travel, limiting its exposure to fare wars. But a slowing industry will impact all airlines.

For long-term focused investors looking to buy an airline stock, Delta is a top choice. But be warned there could be some turbulence in the months to come.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

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