Key Points
- Delta Air Lines sharply cut its full-year profit guidance due to high fuel costs tied to Middle East turmoil, though demand and revenue remain strong.
- United Airlines and Southwest Airlines both face upcoming earnings reports that could reveal whether rising fuel costs will affect the entire airline industry.
- Analysts have lowered price targets for Delta and United while largely maintaining Buy ratings, and Southwest faces more skepticism due to its domestic focus.
- Special Report: Porter flew 3,300 miles to investigate this system
The bumpy ride for Delta Air Lines Inc. (NYSE: DAL) may likely continue. In its Q3 2026 earnings report, the company just pulled back its full-year profit guidance by more than a dollar per share at the midpoint.
This is one of the largest single-quarter cuts to earnings guidance that the company has ever made. The primary reason for the cautious approach from Delta management is the high cost of fuel, largely tied to turmoil in the Middle East and disrupted global trade.
This puts Delta investors—and those focused on airlines in general—in a tough spot. Amid a fragile post-COVID recovery, this shock could reverberate across the industry, affecting multiple companies. With other firms like United Airlines Holdings (NASDAQ: UAL) and Southwest Airlines Co. (NYSE: LUV) set to report earnings in the weeks following Delta's announcement, the market may soon be able to make a better prediction as to whether this is a Delta-specific problem or one that may plague the whole industry. Unfortunately, signs may be pointing toward the latter.
Delta's Earnings Fallout Comes With Some Very Bright Points
High fuel costs are punishing Delta's margins, already resulting in flat EBIT and earnings per share (EPS) in the latest quarter, even as management has significantly revised full-year guidance downward. Fuel costs are particularly difficult for airlines because they are not able to hedge them indefinitely. As the Iran war continues and crude prices remain significantly elevated, there are few signs that prices will come down in the near term.
On the other hand, the company demonstrated some important highlights in its latest quarter. Most importantly, demand remains very robust, as evidenced by record Q3 revenue and GAAP revenue growth of 21% year over year (YOY). This was bolstered by strong passenger mix and robust improvement across regions, a sign that Delta's business is healthy and that customers around the world are choosing to prioritize air travel even as they tighten their belts elsewhere.
Predictably, several Wall Street firms lowered their price targets for DAL shares after the latest report, but nearly all of them maintained Buy ratings on the stock. Even after reducing the consensus price target, a collective prediction of $100.01 per share suggests the firm may have 24% in possible upside ahead; it may just be a matter of waiting out the persistent fuel cost issue.
United's Earnings May Be a Test of Its Different Route Priorities
United is one of the most directly comparable rivals to Delta and, with earnings coming up, a key data point for investors looking to assess whether the fuel crisis will hit all corners of the industry equally.
The company's unhedged fuel exposure could put it in a difficult spot as well. An important distinction for United, however, is its trans-Pacific route network, the strength of which distinguishes it from Delta and other competitors and which provides some additional revenue diversification. United's report may help investors assess whether an airline's focus on international or domestic capacity has bearing on how it navigates a fuel crisis.
Wall Street analysts have not been waiting until United issues its next earnings report, however, to adjust their price targets downward. In the last month alone, six analysts have revised their price estimates in this direction, a trend that could continue if United is not able to distinguish itself from Delta when it comes to the impact of high fuel costs. That said, analysts continue to view shares as a Buy in most cases, and UAL still enjoys about 48% in upside potential, another sign that a strong recovery could be possible when the fuel crisis is resolved.
Southwest's Business Model May Leave It More Vulnerable
Despite some international presence, Southwest is primarily a domestic carrier, which potentially puts it at a disadvantage compared to United and Delta, both of which can lean on lucrative long-haul international routes.
The company also does not have an extensive hedging program for fuel costs, leaving it more susceptible to crude oil price spikes.
Further, Southwest's branding as a low-cost carrier may force it to further adjust its schedules in order to maintain lower price points for customers in the current environment.
The result of all of this is that analysts tend to be more skeptical of LUV stock, with a majority calling shares either a Hold or even a Sell, despite about 15% in upside potential.
Still, Southwest also has earnings upcoming and could win a positive market response if it is able to reassure investors that it can navigate the fuel issue more adeptly than its rivals.
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