Delta sees annual profit rise despite technical glitch

(Bloomberg) — Delta Air Lines Inc. said profit this year could top its previous forecast if investors ignore the financial blow from this summer's systemic crisis.

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Adjusted earnings will be at or above the midpoint of a forecast range of $6 to $7 per share, the airline said in a regulatory filing Thursday. The updated guidance excludes a 45-cent impact from the CrowdStrike Holdings Inc. disruption, which led Delta to cancel thousands of flights over several days in July. Analysts had expected earnings of $6.12 per share.

Delta was hit hardest by the computer software shutdowns at U.S. airlines. Third-quarter revenue is expected to be flat to 1% higher than a year ago, including an estimated $380 million reduction related to July’s flight chaos. That compares with an earlier forecast for revenue to be as much as 4% higher than a year ago.

Airline executives told analysts at an industry conference Thursday that the disruption, which temporarily prevented Delta from making changes to flights and crews, would have no lasting impact. The airline also maintained its previous estimate of the financial impact.

“The underlying drivers are pretty good,” Delta President Glen Hauenstein said at the Morgan Stanley conference. “We're pleased with the performance of the business in the quarter, with the demand backdrop, where we are with fuel. We feel very good about the year.”

Delta shares rose 1.2% to $44.79 at 11:57 a.m. in New York. The stock has gained about 11% this year.

The company joined smaller airlines in reporting that unit revenue improved overall, partly due to a slowdown in domestic capacity expansion. Too many seats in the market depressed fares early in the summer, preventing airlines from fully capitalizing on record travel demand.

Alaska Air Group Inc., which won some Delta customers during the IT systems crisis, raised its third-quarter profit forecast on Thursday to $2.15 to $2.25 a share, from a previous estimate of as much as $1.60, and JetBlue Airways Corp. said last week that revenue would rise 1% to fall 2.5% year-over-year. Previously, it had expected a decline of as much as 5.5%.

Non-fuel unit costs will rise about 5.5% in the current quarter, compared with Delta’s previous forecast of as much as a 2% increase. That includes about $170 million in refunds to passengers during the outage and expenses related to misplaced crews.

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Third-quarter earnings per share will be at the high end of its previous forecast of $1.70 to $2, also excluding the CrowdStrike outage, Delta said. Wall Street had expected $1.57 per share, based on analyst estimates compiled by Bloomberg.

Delta and CrowdStrike have been at odds over what technical assistance was provided and when, and who was responsible for Delta’s slow recovery time. The airline has hired prominent attorney David Boies to pursue legal claims against CrowdStrike and Microsoft Corp., whose operating system the software ran on, seeking damages.

The CrowdStrike outage caused a “catastrophic shutdown” of more than 8 million computers worldwide, including 37,000 at Delta, Boies said in a letter to CrowdStrike’s attorney last month. The outage affected more than 1.3 million of the airline’s customers and about 60% of its “mission critical” applications, including backup systems, that rely on the Microsoft Windows operating system and CrowdStrike, he said.

The U.S. Department of Transportation has launched an investigation into the incident to ensure Delta is following requirements for disruptions within an airline’s control, which include issuing vouchers for meals, hotels and rebooking on another airline, and providing a full cash refund under certain circumstances. The investigation was prompted by 3,000 passenger complaints filed with the department.

(Updates fourth paragraph with management comments.)

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