The CrowdStrike (CRWD, Financial) outage from July 19, lasting five days, significantly impacted Delta Air Lines (DAL, Financial) in Q3, leading to a missed quarterly EPS expectation for the second consecutive quarter. The outage caused a $380 million revenue loss and reduced DAL's EPS by $0.45 due to customer refunds and increased crew costs. However, DAL had already indicated this impact when it lowered its guidance on September 12, so estimates likely accounted for these negative effects.
DAL's Q4 revenue growth guidance of 2-4% fell short of expectations. CEO Ed Bastian noted a slowdown in bookings around the U.S. elections in November, adding to the disappointment.
- DAL's Q3 results showed a 5.7% year-over-year increase in non-fuel CASM, slightly above the 5.5% forecasted on September 12. The CRWD outage alone contributed to a 3.2% rise in non-fuel CASM.
- Unit revenue has been under pressure as an imbalance between supply and demand caused fare prices to drop. In Q3, adjusted total unit revenue (TRASM) decreased by 3.6% year-over-year, including a 1.1-point impact from the outage.
- Positive news came as DAL reported that supply growth is stabilizing. In September, both domestic and transatlantic unit revenue growth turned positive. Despite a 3% drop in Q3 revenue from its transatlantic business, trends are improving, especially with rebounding Paris demand post-Olympics.
- With a rebalancing of supply and demand, increasing demand for international flights, and normalized costs in Q4, DAL is poised for improved profitability. The company expects a Q4 operating margin of 11-13%, up from 9.4% in Q3, with a 30% year-over-year increase in pre-tax profit to $1.4 billion.
As the first major airline to report Q3 earnings, DAL's results set expectations for upcoming reports from competitors United Airlines (UAL, Financial), American Airlines (AAL, Financial), and Southwest Air (LUV, Financial). While the CRWD outage did not affect LUV, Q3 business conditions mirrored Q2 with excess seat supply pressuring unit revenue. However, airlines, including DAL, are reducing capacity, paving the way for stronger profits in Q4 and into 2025.
