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Against an increasingly turbulent macroeconomic climate and as associated downturn in domestic leisure travel demand, Delta Air Lines (DAL) flew past analysts' muted 1Q25 EPS and revenue estimates. On March 10, the airliner slashed its Q1 guidance, resetting the bar lower and signaling that it may be in for a bumpy landing this year following a post-pandemic boom period. On that note, DAL refrained from reaffirming its FY25 guidance due to tariff-related uncertainties. The company had previously guided for FY25 EPS of greater than $7.35 and free cash flow of over $4.0 bln.

• Weaker consumer confidence and softness within price sensitive customers led to a 5% decrease in domestic leisure travel demand and DAL isn't anticipating an upswing in this category any time soon. The company's most price-sensitive customers -- those flying in the main cabin on non-peak flights -- have pulled back on spending, significantly impacting domestic bookings. Consequently, in an effort to protect margins, DAL revised its capacity growth plans for 2H25 to remain flat compared to 2024 levels.
• In 1Q25, capacity, or Available Seat Miles (ASMs), grew by 4.2% to 68.3 bln, reflecting moderate capacity expansion despite DAL's cautious view on demand. The combination of capacity growth and slowing domestic leisure travel demand pressured DAL's unit revenue (TRASM), which slipped by 1% yr/yr, down from flat last quarter.
• Some pockets of strength remain, though, and DAL's revenue diversification strategy is providing it with some resiliency. For instance, premium revenue grew by 7% yr/yr compared to a 3% decline for main cabin, driven by strong demand for Delta One and Premium Select premium cabins. Relatedly, DAL continues to see strength in its loyalty program, generating record revenue of $2.0 bln from its American Express (AXP) partnership.
• DAL's substantial international business (about 40% of total revenue) is also providing it with an edge. International routes are showing resilience despite global trade uncertainties, as illustrated by the mid-single-digit revenue increase for DAL's international business. The Pacific region was particularly strong with revenue jumping by 16%.
• Although DAL is taking a cautious approach to its outlook, its in-line Q2 EPS and revenue guidance is likely viewed as better-than-feared and is providing the stock with a spark following a 44% nosedive since its Q4 report in January. Along with strength in premium and international, lower fuel costs are helping to support DAL's profits. On a yr/yr basis, DAL's fuel costs slid by 7% as the average fuel price per gallon decreased to $2.47 from $2.79.

DAL delivered better-than-expected Q1 results, buoyed by growth in premium travel and international routes, which helped to offset the downturn in domestic leisure travel. Corporate travel remains soft and is now flat yr/yr with the outlook growing cloudier as tariff-related uncertainties weigh. It's shaping up to be a difficult year for the airline industry, but DAL's more diverse revenue streams should enable it to outperform many of its competitors.