Delta lifts profit forecast thanks to strong demand and premium tickets

Delta Air Lines on Tuesday raised its second-quarter forecast and estimated full-year adjusted earnings of $6 a share, at the high end of estimates it gave last April as strong travel demand and trade-ups to more expensive fare classes continue to drive growth.

Delta forecast adjusted earnings per share of $2.25 to $2.50 for the second quarter, up from a previous range of $2 to $2.25 a share. CEO Ed Bastian said the company’s second-quarter earnings, which it is scheduled to report next month, could be its highest ever for the April-June period.

“The demand as you know, as anyone that’s traveling knows, is off the chain,” Bastian said in an interview with CNBC’s “Squawk Box.”

Delta shares rose 6.8% Tuesday to $46.09 a more than two-year high.

In an investor day presentation Tuesday, the airline also raised its estimate for free cash generation this year to $3 billion from $2 billion. Delta reinstated its quarterly dividend earlier this month.

Delta and its rivals have reported strong travel demand, particularly for international trips, while other sectors have struggled as consumers grapple with inflation and other challenges. The airline industry has also faced growth constraints because of air traffic controller shortages, delays in new aircraft and shortfalls of new pilots, helping keep fares firm.

But in addition to resilient demand, airlines are also enjoying jet fuel prices that are down about 30% from a year ago.

And, Delta on Tuesday forecast revenue per available seat mile, a gauge of how much money an airline is generating for how much it’s flying, to be up as much as 18% over last year, an increase from a previous forecast of 15% to 17% growth.

The airline has repeatedly touted customers’ willingness to buy up to more expensive seats, from those with extra legroom to first class. Premium revenue will come in at about $19 billion this year, a 35% share of total revenue, up from a 24% share in 2014.

The carrier also said its lucrative partnership with American Express credit cards continues to grow, generating an estimated $6.5 billion this year compared with $4 billion in 2019.