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Storm Ahead


Image source: @bleedgfx - Giphy, Soos Jozsef, ideyweb - Shutterstock

What's going on?

Delta Air Lines reported third-quarter results which cruised past investors’ expectations on Thursday – but shares of the world’s largest air carrier fell after it pointed to turbulence up ahead.

What does this mean?

Just last week, Delta gave investors a sneak peek into the captain’s cabin: the airline said it’d generate third-quarter earnings per share of up to $2.30 – and it duly delivered two cents more than that on Thursday. But investors are fastening their seatbelts for this quarter: the company expects its non-fuel costs to rise 5% versus the same time a year ago, with higher wages largely to blame. And despite declining oil (and in turn jet fuel) prices since this time last year, Delta’s other costs mean its investors might need to brace for a lower fourth-quarter profit than they expected.

Why should I care?

For markets: Please remain calm.
Some investors rushed to their nearest exit – Delta’s stock fell 4% – and others might be about to follow. The airline’s stock has risen by more than its peers’ since Boeing’s 737 MAX 8 was grounded in March, making Delta – which doesn’t use them – the first port-of-call for forlorn travelers. But with Boeing’s 737s possibly back in the sky by January, investors might be concerned about Delta’s plans to grow its own fleet. Increased supply without increased demand should push flight prices lower next year. So if Delta wants to keep hold of those new customers, it might have to be the first to cut its prices, potentially putting next year’s profit at risk.

The bigger picture: There’s no easy way out.
EasyJet is facing a similar challenge. This week, the budget British airline announced it’d probably earn more than expected this year, thanks to strikes at rival airlines. But with competitors lining up to take bankrupt Thomas Cook’s place on the runway, investors worried about next year’s growth sold off its shares.

Originally posted as part of the Finimize daily email.

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