Delta Air cuts profit forecast as $6-billion fuel-cost surge outweighs fare gains

Delta Air Lines DAL-N cut its annual profit forecast by nearly a quarter on Friday,as surging fuel costs, expected to add US$6-billion to its bill in 2026, overwhelmed resilient travel demand and higher ticket prices.

Its shares fell 2.5 per cent in premarket trading after the carrier cut its 2026 profit forecast for the first time this year and lifted its projected fuel-cost increase by US$2-billion as the Iran war has driven jet fuel prices sharply higher worldwide. With no end to the war in sight, carriers are confronting their worst crisis since the pandemic.

The downgrade underscores a growing challenge for the industry: whether passengers will absorb further fare increases if fuel prices remain elevated. Airlines have already raised fares substantially this year, and analysts warn further increases could test travellers’ willingness to keep spending.

Delta, the first major global carrier to report third-quarter results, said fuel expenses for the period rose 62 per cent from a year earlier to US$4.1-billion, exceeding its July forecast by more than US$500-million.

“All of it’s fuel,” Delta chief financial officer Erik Snell told reporters when asked what drove the forecast cut, citing increases in both crude oil and refined jet fuel prices since the summer.

Delta now expects adjusted annual earnings of US$5.10 to US$5.60 a share, down from the US$6.50 to US$7.50 it forecast in July. The new midpoint of US$5.35 is below analysts’ average estimate of US5.46, according to LSEG. It forecast US$4.5 billion in adjusted pre-tax profit for 2026.

Third-quarter adjusted earnings of US$1.72 a share narrowly missed analysts’ average estimate of US$1.76, according to LSEG. Its adjusted operating margin fell to 9.4 per cent from 11.1 per cent.

Rivals United Airlines, American Airlines and Southwest Airlines are due to report later this month. Ryanair Group CEO Michael O’Leary warned on Thursday that European airlines could face more than another year of elevated fuel costs due to the war.

Higher fares

U.S. airlines spent US$42.9-billion on fuel for scheduled flights in the first eight months of 2026, nearly US$13.2-billion more than a year earlier, despite using slightly less fuel, according to the Bureau of Transportation Statistics.

Strong demand and limited growth in seats have helped carriers pass higher fuel costs on to passengers. US airline fares rose an average of about 25 per cent from a year earlier in the five months through August, according to the Bureau of Labor Statistics’ consumer price index.

With fuel prices remaining elevated and planned industry capacity growth set to accelerate in the fourth quarter from the third, analysts are watching whether carriers, including Delta, can raise fares further without discouraging travel.

Deutsche Bank analysts expect the industry to recover a smaller share of higher fuel costs through revenue measures in the fourth quarter, with full recovery not expected until early 2027.

Delta said demand remains strong. With almost 60 per cent of the fourth quarter already booked, it expects revenue growth of about 20 per cent from a year ago, Snell said.

“The general sentiment from our experts is that much of the revenue results and outlooks are held up by the premium passenger and higher fares,” Third Bridge analyst Liam Dorsey said.

“At the moment, those higher prices have not destroyed any demand and it remains to be seen how long that will last.”

Refinery advantage

Delta has an advantage over other major US airlines: its ownership of a refinery outside Philadelphia that Snell expects to generate US$700-million in profit this year.

“We have a refinery that gives us an offset, a partial offset to fuel prices that no one else does,” he said.

Bought in 2012, the Monroe refinery processes crude oil into jet fuel and other products. Delta still pays market prices for fuel transferred to its airline operations, but retains the refining profit within the company.

That helps when the gap between crude and refined fuel prices widens, increasing costs for airlines buying from outside suppliers. The protection varies with refining margins, however, and the refinery can lose money when those margins weaken.

But the refinery can only partly cushion the impact of higher fuel prices. Even with a projected refinery benefit of 40 US cents a gallon, Delta expects its fuel cost to rise to US$4.25 a gallon in the fourth quarter from US$3.61 in the third.

Snell said fuel costs were expected to stay elevated for some time.

“Ultimately, fuel will come down. When that is, we’re not exactly sure,” he said.