By Callum Keown

Delta Air Lines' earnings Wednesday are likely to be pivotal for the travel sector and potentially for the U.S. economy too.

The carrier was one of the first companies to raise the economic alarm last month as it signaled that corporate and consumer confidence was dented in the first quarter due to macroeconomic uncertainty.

The airline cut its guidance on March 11, warning that revenue will be $500 million less than it previously expected in the first three months of the year. CEO Ed Bastian said that around half of that was from transitory factors such as bad weather and the impact of crashes on the industry.

The other half mostly relates to companies and consumers pulling back on travel spending -- but a lot has happened since then, with both uncertainty and the scale of global tariffs ramping up significantly, following President Donald Trump's recent announcements.

Therefore investors will be anxiously awaiting an update from Delta, whose forward guidance and commentary about demand will give a strong indication of the economic health of the consumer.

"Delta is among the first U.S. companies to report earnings and will set the tone of consumer strength given the uncertainty created under the administration's policies," Jefferies analyst Sheila Kahyaoglu said as she downgraded the stock to Hold from Buy last week.

Investors have been fearing the worst as travel stocks have plummeted in recent weeks, driven by tariff uncertainty and recession fears. Delta has fallen 36% so far this year, while United Airlines is down 38% and American Airlines has declined 44% over the same period.

For the first quarter, analysts are expecting earnings of 38 cents per share on revenue of $13 billion in the first quarter. Delta is guiding for EPS of between 30 and 50 cents, down from a previous range of 70 cents to $1.

But the carrier's second quarter and full-year guidance are likely to be of more interest. A full-year guidance cut is expected -- Delta initially guided for EPS of $7.35 or greater in January.

Wall Street's earnings expectations for 2025 have dramatically reduced in recent days, falling to $5.88 from $7.14 at the end of March, according to FactSet data. For the second quarter, analysts see EPS of $2.21.

Raymond James analyst Savanthi Syth reiterated a Strong Buy rating on Delta stock last week, noting its "attractive valuation" and margin advantage over its peers. Her target price of $62, implies 60% upside to Tuesday's price. However, she said Monday that "it is too early to know if this week's tariff news and stock market selloff would drive further weakness" in demand for U.S. airlines.

President Donald Trump's sweeping global tariffs announced last week have increased fears of a U.S. recession. JPMorgan increased its recession risk forecast to 60% from 40% Friday.

Another big unknown for airlines is how premium demand, which has surged since the pandemic, would hold up in a recession scenario, J.P. Morgan analyst Jamie Baker said in a note Tuesday. He said that typically revenue trends for the big three -- American, Delta and United -- typically underperform those of low-cost carriers.

"One of the biggest uncertainties for us is at what level of stock market pain does the premium passenger begin to crack. We'll see what Delta throws our way on Wednesday, but for us, the health of premium demand remains paramount," he said.

Write to Callum Keown at callum.keown@dowjones.com

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April 08, 2025 17:30 ET (21:30 GMT)

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