Delta updates full-year EPS outlook to $6 and targets $3.5B–$4B free cash flow as premium demand accelerates

Earnings Call Insights: Delta Air Lines (DAL) Q3 2025

MANAGEMENT VIEW

* CEO Ed Bastian reported "Delta's revenue growth and earnings came in at the top end of our expectations, delivering performance that we anticipate will lead the industry across all key financial measures" and highlighted revenue growth of 4%, pretax income of $1.5 billion, and earnings of $1.71 per share with an 11.2% operating margin. Bastian emphasized the company's focus on premium, corporate, and loyalty segments and noted "free cash was $830 million, bringing our year-to-date free cash flow to $2.8 billion."
* Bastian stated, "Our fundamentals are improving and the positive momentum is continuing. Since July, travel demand has strengthened, led by a rebound in business travel, which was up high single digits in the quarter."
* Bastian announced, "We expect to deliver a double-digit operating margin again in the December quarter with earnings comparable to what we earned in the September quarter. This would be at or above our all-time fourth quarter earnings performance."
* For the full year, Bastian set the earnings outlook at "approximately $6 per share, which is in the upper half of our July guidance range" and updated free cash flow guidance to "$3.5 billion to $4 billion, growing our cash generation over last year."
* President Glen Hauenstein confirmed, "For the September quarter, revenue increased 4.1% year-over-year to $15.2 billion, a third quarter record and ahead of our guidance as momentum built through the quarter."
* Hauenstein noted, "Diverse high-margin revenue streams grew double digits year-over-year and contributed 60% of total revenue. Within that, premium revenue grew 9%... Loyalty revenue improved 9% and travel adjacent products grew mid-teens." He added, "Remuneration from American Express increased 12% over prior year to $2 billion in the quarter, keeping us on track to deliver over $8 billion this year."
* CFO Daniel Janki said, "Nonfuel unit cost growth was approximately flat to prior year, bringing the year-to-date nonfuel unit cost growth to less than 2%, consistent with our low single-digit guidance at the start of the year, even as we've reduced capacity after the summer peak to align to demand."
* Janki highlighted a successful repricing of the SkyMiles term loan, reducing the rate by 225 basis points and gross leverage ending the quarter at 2.4x.

OUTLOOK

* Management projects "revenue growth of 2% to 4% year-over-year" in the December quarter with "fourth quarter earnings of $1.60 to $1.90 per share and an operating margin of 10.5% to 12%." For the full year, Delta's guidance is "earnings per share of approximately $6, in the upper half of our guidance range we provided in July."
* Free cash flow guidance is updated to "$3.5 billion to $4 billion."
* Hauenstein expressed optimism about continued top line growth and margin expansion into 2026.

FINANCIAL RESULTS

* Delta reported record third quarter revenue of $15.2 billion, operating margin of 11.2%, and earnings of $1.71 per share.
* Free cash flow for the quarter was $830 million, with year-to-date free cash flow at $2.8 billion.
* Nonfuel unit cost growth was flat year-over-year, and operating cash flow for the quarter was $1.8 billion.
* Remuneration from American Express reached $2 billion in the quarter.

Q&A

* Duane Pfennigwerth, Evercore ISI: Asked about drivers of cash flow improvement. Janki responded that "the underlying improvement to offset that is coming out of working capital. We built up a lot of just... excess as we are rebuilding the airline. And now is our time as we drive efficiency to work that off, and you're seeing that in working capital."
* Thomas Fitzgerald, TD Cowen: Requested details on domestic market improvements and premium seat mix. Hauenstein explained the company's exposure to higher-income households has enhanced its relative position. On premium seat mix, "most of our growth, if not almost all of it, will be in the premium sectors."
* Catherine O'Brien, Goldman Sachs: Asked about efficiency gains and domestic Main Cabin inflection. Janki stated efficiency efforts are "in the very, very early innings of the unlock, and we have years of that in front of us."
* Jamie Baker, JPMorgan: Queried about premium revenue drivers and overlap with corporate. Hauenstein said, "premium products used to be loss leaders and now they're the highest margin products... the best margins are in the most premium products."
* Andrew Didora, BofA Securities: Asked about Atlantic RASM decline. Hauenstein described Q3 as "clearly disappointing" and outlined adjustments for next year, including booking curve and capacity changes.
* Michael Linenberg, Deutsche Bank: Inquired on government shutdown impact, with Hauenstein stating it's "less than $1 million a day now."
* Sheila Kahyaoglu, Jefferies: Sought Atlantic capacity outlook. Hauenstein expects "low single digits" capacity growth in peak months next year.
* Savanthi Syth, Raymond James: Asked about Latin America. Hauenstein said long haul is "very solid" and short haul is "a mixed bag."
* Scott Group, Wolfe Research: Questioned Q4 earnings seasonality. Hauenstein indicated Q4 strength is driven by "strong premium demands and corporate travel in season."
* Brandon Oglenski, Barclays: Probed on sustainable loyalty and premium trends. Hauenstein pointed to "record number of premium card holders... their spend is a multiple of what our base member card spend is."

SENTIMENT ANALYSIS

* Analysts maintained a positive to slightly positive tone, seeking clarity around sustainability of premium growth, margins, and improvements in Main Cabin and international trends. They pressed on forward momentum in corporate travel and implications of industry supply rationalization.
* Management's tone was confident and optimistic in prepared remarks, emphasizing strong execution and improved fundamentals. In Q&A, management remained candid, acknowledging prior challenges (e.g., Atlantic RASM) while reiterating commitment to margin and premium growth. Confidence was reinforced with phrases like "I'm more optimistic than ever about Delta's future" (Bastian).
* Compared to the previous quarter, the management’s tone shifted further toward optimism, citing stronger demand recovery and improved Main Cabin trends. Analysts’ tone was less focused on risk and more on growth levers.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for full year EPS increased to approximately $6 from the previous range of $5.25 to $6.25. Free cash flow guidance also moved to $3.5 billion–$4 billion versus the previous $3 billion–$4 billion range.
* Premium revenue growth doubled from 5% in Q2 to 9% in Q3. Loyalty revenue growth also accelerated slightly. Main Cabin trends turned positive, compared to softness previously discussed.
* Management's confidence in margin expansion and premium demand has grown, and discussions of efficiency and cost control remain central.
* Analysts shifted from questioning demand stability to exploring upside drivers in premium and loyalty, reflecting stronger near-term fundamentals.

RISKS AND CONCERNS

* Management cited potential impacts from the ongoing U.S. government shutdown but noted "we have not seen a material effect to date."
* Supply chain inflation in maintenance and parts remains a challenge, with Janki stating "it's got a long ways to go."
* Atlantic RASM was flagged as disappointing, with corrective steps planned for next year.
* Analysts raised concerns about sustainability of premium demand and the normalization of Main Cabin trends, as well as international revenue recovery.

FINAL TAKEAWAY

Delta’s management reiterated its focus on profitable growth, margin expansion, and disciplined capital allocation, emphasizing the power of its premium, loyalty, and corporate revenue streams. With robust guidance for both earnings and free cash flow, continued operational reliability, and a strategic tilt toward premium product and loyalty expansion, Delta positions itself for industry-leading financial performance into the final quarter of the year and beyond.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/dal/earnings/transcripts]

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