Delta Air Lines, Inc. earnings

Management highlights

**Overall Financial & Strategic Performance** - Generated record Q2 2026 revenue of $17.7 billion, up 14% year-over-year (an increase of over $2 billion), with $1.4 billion in pre-tax profit, $1.56 diluted earnings per share, and a 9% operating margin, all exceeding the quarter's initial guidance - Return on invested capital hit 11%, well above Delta's cost of capital; $1.4 billion in free cash flow was generated in the first half of 2026, and a 15% dividend increase was announced - The Delta-American Express co-brand card partnership continues to outperform: card spend has grown double digits for seven consecutive quarters, with particular strength among premium reserve cardholders, and full-year 2026 remuneration is expected to hit $9 billion, up 10% from 2025 **Operational Performance** - Extended industry leadership in on-time arrival and departure performance, improved completion factors, and delivered record baggage handling performance, supported by AI technology and process enhancements at Delta's Atlanta hub - Led large U.S. carriers in domestic net promoter score, with customer interaction scores reaching all-time records across all customer-facing teams (airport service, reservations, flight attendants, pilots) - Improved all key fleet reliability metrics (out-of-service rates, maintenance-related delays/cancellations) year-over-year, driven by predictive maintenance investments - Third-party MRO business is growing rapidly, with a record backlog that positions Delta to more than double MRO revenue over the next several years while expanding margins to mid-teens **Commercial & Product Innovation** - Maintained a measured approach to capacity growth, focused on margin expansion rather than market share gains - Completed the rollout of segmented fare options (basic, classic, extra) for Delta Comfort+, and will expand this structure to all premium cabins in Q3 2026, increasing customer choice while driving higher revenue - Continued rollout of customer experience improvements: opened the fifth Delta One Lounge at LAX, expanded the AI-powered Delta Concierge digital assistant to over half of FlyDelta app users (full rollout planned for end of July 2026), and enabled free fast Wi-Fi across nearly the entire fleet for SkyMiles members, with next-generation Amazon Leo satellite connectivity launching in 2028 - SkyMiles membership growth outpaces capacity growth, led by double-digit gains among Gen Z members

Guidance

- Full year 2026 guidance for earnings per share of $6.50 to $7.50 is affirmed, representing 20% year-over-year growth, even with a multibillion-dollar fuel headwind - Full year 2026 free cash flow guidance is maintained at $3 to $4 billion, bringing the three-year cumulative free cash flow total to over $11 billion - Q3 2026 (September quarter) guidance: revenue expected to grow mid-teens year-over-year, unit revenue growth will improve sequentially from Q2, with total capacity up 1% year-over-year; operating margin is expected to be 11% to 13%, with earnings per share of $2.00 to $2.50; all-in fuel price expected to be ~$3.15 per gallon including a $0.05 refinery benefit, with total fuel expense ~40% higher than 2025 - Q4 2026 (December quarter) guidance: capacity is planned to grow 2% to 3% year-over-year, led by international growth, and early booking trends are strong, with revenue strength expected to extend through the end of the year - Non-fuel unit costs are expected to improve modestly in Q3, with further progress in Q4, putting Delta back on track for its long-term framework of low single-digit non-fuel unit cost growth - MRO revenue is on track to hit ~$1.2 billion in full-year 2026, with a long-term target of mid-teens margins, expanding ~200 basis points per year from current low double-digit levels - Long-term framework confirms a path to sustainably mid-teens operating margins and double-digit return on invested capital - Future capacity growth will be focused on two core areas: 1) upgauging (replacing older smaller narrowbody aircraft with larger newer models, starting in 2027 with MAX 10 deliveries) and 2) international expansion focused on Asia, the Middle East, and South America through JV partnerships

Segment performance

Total company revenue for the June 2026 quarter was $17.7 billion, up 14% year-over-year on 1% total capacity growth, with 12.4% total unit revenue growth. Diverse non-ticket revenue streams represented 61% of total revenue, up 2 percentage points year-over-year, with premium and loyalty revenue both up nearly 20% year-over-year. Cargo revenue grew 39% year-over-year, driven primarily by volume increases and rerouted cargo traffic. Third-party MRO (maintenance, repair, overhaul) revenue grew more than 30% year-over-year, and is on track to hit ~$1.2 billion in full-year 2026 revenue (up nearly 50% from 2025), with low double-digit operating margins currently. Domestic unit revenue grew 12.4% year-over-year driven by higher yields, while international unit revenue grew 8% year-over-year led by the Latin America segment. Main cabin unit revenue grew mid-teens in June 2026, outperforming premium unit revenue growth in the quarter, while corporate sales across all sectors posted 20%+ year-over-year growth in core and coastal hubs.

Risks & headwinds

- High sustained fuel prices remain a significant headwind for the industry, with 2026 fuel expenses expected to be nearly $4 billion higher year-over-year - Industry-wide cost inflation for labor, aircraft, airports, and technology increases pressure to maintain pricing discipline - Aircraft and engine production constraints limit industry capacity growth, creating supply uncertainty for fleet renewal plans - Investors have lingering concerns that low-cost carriers will undercut industry pricing to gain market share if fuel prices moderate - Operational volatility during the peak summer travel season continues to create pressure on reliability and customer satisfaction - New engine technology has had lower than expected durability, creating additional maintenance and operational uncertainty

Analyst Q&A

• Q: Connor Cunningham (Malleus Research) asked about the progression of unit revenue through Q2, and what gives Delta confidence that firm pricing will hold in the second half of 2026. /

  A: Joe Esposito explained that Q2 unit revenue exit rates in June were meaningfully higher than entry rates in April, as the fuel recapture strategy launched in March gradually moved higher fares through the booking system, with both premium and main cabin showing this improvement. He added that broad industry cost pressure from inflation and elevated fuel prices gives Delta confidence pricing will hold, paired with measured capacity growth and strong forward booking trends (higher bookings 90+ days out) for the back half. Delta's network is also more business-oriented in the post-summer fall season, which supports stable pricing. (351 characters)

• Q: Mike Linenberg (Deutsche Bank) asked whether low-cost carriers will undermine industry pricing as fuel prices moderate, given what appears to be a secular decline for the low-cost segment. /

  A: Ed Bastian explained that the industry dynamic has changed completely from past high-fuel cycles. Unlike 10 years ago, no major carrier now holds significant large fuel hedges to support underpricing, and all carriers face broad-based cost increases across labor, aircraft, and infrastructure. Bastian noted that low-cost carriers still need to raise fares by an estimated 5% just to break even at current fuel prices, so there is no incentive to pursue market share through price cuts. Delta's strategy of competing on experience and value rather than price positions it well in this new environment. (428 characters)

• Q: David Vernon (Bernstein) asked about capacity growth plans for Q4 2026 and 2027, and whether constrained Boeing/Airbus deliveries will disrupt the current improved industry pricing structure. /

  A: Ed Bastian stated that Q4 2026 capacity will return to a normalized 2-3% year-over-year growth, in line with long-term trend. He explained that future growth will be focused on upgauging (replacing older smaller narrowbodies like 717s and 757s with larger new models) and targeted international expansion in the Middle East, Asia, and South America. Bastian added that widespread aircraft and engine production constraints are a significant permanent industry capacity limit, so new deliveries are not expected to upset the current structural pricing improvement. Delta's new MAX 10 deliveries will primarily replace older aircraft, not add net capacity. (437 characters)

• Q: Jamie Baker (J.P. Morgan) asked what peak sustainable pre-tax margins Delta can achieve over the long term. /

  A: Ed Bastian reaffirmed Delta's long-term framework of sustainably mid-teens operating margins, with the potential for modestly higher results in peak environments. He cited multiple durable structural changes supporting this target: broad industry capacity discipline driven by high costs and constrained aircraft supply, Delta's shift from competing on price to competing on branded customer experience (which creates durable customer loyalty), ongoing fleet efficiency gains from upgauging, and future efficiency gains from AI and operational technology. A strong investment-grade balance sheet also allows Delta to play offense during market downturns rather than being forced to cut prices to reduce debt. (424 characters)