The cloudy days hovering over the fate of the U.S. Airline sector appear to be clearing out, with Delta Air Lines (NYSE: DAL) reporting better-than-expected 2Q 2025 financial results this week. The company posted operating revenue of $16.6 billion (flat y-o-y) and net earnings of $3.27 per share (63% higher y-o-y) for the June quarter. The stock jumped 12% to $56.78 per share post the results as the airline reinstated its full year earnings guidance at $5.25 to $6.25 per share and free cash flow expectation at $3 to $4 billion for FY 2025, indicating enhanced confidence in the business and improving macroeconomic conditions. In addition, the Atlanta-based airline recently announced a 25% increase in its September quarter dividend to $0.1875 per share, showcasing its commitment to return shareholders’ wealth while expanding its operations.
Delta’s encouraging results helped restore waning investor confidence in the airline sector, sparking a rally in United Airlines (NASDAQ: UAL) and American Airlines (NASDAQ: AAL) stocks by 14% and 13%, respectively. While DAL’s results have set a positive tone for the rest of the airlines, due to release their numbers in the coming days, the near-term outlook still looks blurry. With the recent air travel incidents, travel demand has been weak, particularly main-cabin demand, and is expected to remain subdued even for the rest of the year.
Operational Performance
Delta increased its capacity, measured by available seat miles (ASM), by 4% during the second quarter, despite softness in its yields (total passenger revenue divided by total number of miles traveled by paying passengers). The load factor, or the occupancy, was slightly lower at 86% for 2Q compared to 87% last year. During the quarter, DAL took delivery of 10 aircraft, bringing the total year-to-date count to 19, while it retired 10 aircraft, bringing the total retirement to 14 year-to-date.
Passenger revenue, which accounts for more than 80% of the operating revenue, was $13.9 billion, flat y-o-y, as the decline in main cabin demand was largely offset by premium segment (up 5% y-o-y) and loyalty travel (up 12% y-o-y). Domestic revenue saw weakness throughout the quarter due to lower discretionary spending. However, the airline’s continued restoration of the Transpacific network and double-digit capacity growth in the region led to an 11% increase in Pacific revenue. On an adjusted basis, operating revenue for the period was $15.5 billion (excluding third-party refinery sales).
In terms of costs, DAL generated an operating income of $2.1 billion, a decline of 7% y-o-y, as the lower aircraft fuel cost was more than offset by higher salaries, landing fees and other ancillary business expenses. Accordingly, the operating margin (GAAP) contracted to 12.6% vs. 13.6% in the previous year. That said, the airline booked a gain on investment of $735 million as a non-operating income which resulted in net income of $2.1 billion or $3.27 per diluted share. Excluding the impact of this gain, the adjusted net income was $1.4 billion, or $2.10 per diluted share, which is almost 10% lower than 2Q 2024.
Financial Health
At the end of 2Q 2025, Delta had cash and cash equivalents of $3.3 billion, post repayment of debt and finance lease obligations of $2.9 billion during the quarter. The company spent roughly $1.2 billion on capital expenditure for flight and ground equipment during the quarter. With an operating cash flow of approximately $1.9 billion at the end of June quarter, the carrier is well-positioned to meet its future liabilities. Furthermore, the airline increased its 3Q dividend to $0.1875 per share, bringing its dividend obligation to $500 million which can be easily serviced by its operating cash flows.
Company Guidance
For the 3Q 2025, Delta expects its revenue to grow between 0% to 4% y-o-y, driven by improvement in unit revenue in the second half of the year due to capacity adjustment. The operating margin for the September quarter is expected to be in the range of 9% to 11%, owing to reduction in non-fuel unit cost. Adjusted EPS for the quarter is estimated to be between $1.25 and $1.75 per share. For the full year, the airline reinstated its adjusted EPS estimate to $5.25 to $6.25 per share and free cash flow expectations to $3 to $4 billion. The carrier will restrict its non-fuel unit costs growth to low single digits for the full year, consistent with its long-term target.
What Lies Ahead?
Delta has been at the forefront of slicing up coach cabins to maximize their revenue. Now the airline is trying to segment its premium seats to offer better seats and services to its customers, while charging differential prices for each seat. The move seems reasonable as the premium segment has performed well in the last few months, while the main cabin demand has been sluggish. The question would be on the sustainability of the premium demand as well as Delta’s ability to effectively implement the differential pricing strategy across sectors.
As for the outlook for main-cabin domestic demand, the industry expectation is still bleak. The market expects the major airlines to cut main-cabin capacity for the September quarter to bridge the demand-supply gap. While Delta highlighted stabilized bookings in 2Q after a pull back in March and April, the overall bookings are still lower than the airline’s estimates at the beginning of the year.
Industry experts believe that the impact of US-China trade war has faded, resulting in improved consumer spending. However, the recent air travel incidents, particularly the Air India plane crash, has instilled fear among frequent travelers regarding the safety of air travel. It could take a while for the airline industry to reassure travelers and return to the peak booking trends it has witnessed in the recent past.