Sinking consumer confidence in the economy has spooked Delta Air Lines, with the Atlanta-based carrier warning that its forecast quarter-one revenue could more than halve compared to its initial guidance.
Appearing on CNBC’s Closing Bell: Overtime, Delta chief executive Ed Bastian said the airline now expects a year-on-year revenue increase of between 3% to 4% compared to initial guidance, which put revenue growth at between 7% and 9%.
“We know that GDP is one of the most important factors that our industry is correlated to,” Bastian explained. “We saw in February a pretty significant shift in GDP sentiment and the output and the confidence signals that we monitor. Consumer confidence is coming down a little bit, as we all know.”
Bastian says the airline has already seen consumer spending starting to stall while corporate spending on travel is also headed in the same direction. The economic uncertainty, Bastian says “uncertainty” is exacerbating the situation.
Despite the uncertainty, however, Batian is hopeful that a disappointing Q1 is merely “transitory” and that the airline will “push through.”
Along with economic challenges, Bastian also says that air safety concerns, including the crash landing of a Delta Connection regional jet in Toronto last month, may also be having an impact on domestic demand.
The market update was quickly followed by Delta’s stock taking a dive, although Bastian says it’s not all doom and gloom. For example, premium and international travel demand is still on target, and Delta’s co-brand credit card spending remains on track.
Oil prices have also dropped by around $10 per barrel, which should leave Delta in a position to bring in a consistent profit.
For now, Delta’s economic woes seem limited to its domestic market, although Bastian cautions that things will only become clearer in the weeks ahead and as “[political] policies start to get decided upon.”
As for concerns of a recession, Bastian says he “doesn’t feel it.”
“I think there’s a lot of uncertainty,” Bastian said. “But I still think there’s cautious optimism that as the uncertainty starts to clear, then businesses are going to be ready and poised to start to grow.”
