Delta beats third-quarter earnings estimates as travel demand grows, but costs weigh

Strong travel demand, particularly from high-paying passengers, boosted Delta Air Lines‘ revenue and profits in the third quarter, but costs rose as the airline ramped up flying.

Delta doesn’t fly the Boeing 737 Max, which has been grounded since March after the second of two fatal crashes. Competitors like American and Southwest that have the 737 Max in their fleets canceled thousands of flights in the quarter without access to the planes. As a result, Delta picked up additional market share, which it expects to hold onto, CEO Ed Bastian said.

“Clearly, not having the Max helped us,” Bastian said on CNBC’s “Squawk Box.” “I don’t think it was the main driver” of the quarter’s results.

As Delta increased flying, employee wages help drive up non-fuel costs by 2.4% in the three months ended Sept. 30.

Still, Delta’s earnings forecast for the rest of the year fell short of analysts’ expectations as costs are expected to keep rising. J.P. Morgan analysts equated the fourth-quarter outlook to Delta’s “limping across the finish line.”

Delta forecast per-share earnings of $1.20 to $1.50 in the last three months of 2019, while analysts expected $1.51 a share. Delta said it expects its costs excluding fuel to rise as much as 5% in that period from a year ago. The airline increased wages for ground staff and flight attendants by 4% on Oct. 1.

Shares were down more than 3.5% in premarket trading.

Delta also said it plans to hire at least 12,000 employees, including flight attendants and pilots, through 2020.

Delta said Thursday its third-quarter revenue rose 5% from a year earlier to $12.56 billion, slightly below analysts’ forecasts. Net income rose more than 21% to $1.5 billion. Sales from its premium cabins, like first class, rose 9%.

Per-share earnings on an adjusted basis came in at $2.32, compared with analysts’ estimates of $2.26 a share.

The airline’s executives will hold a call to discuss the results at 10 a.m. ET.

Delta is the first U.S. airline to report third-quarter earnings. United Airlines reports after the market closes on Tuesday, while American and Southwest are scheduled to report on Oct. 24.