Delta's Q3 2025 Earnings Call: Contradictions Emerge on Premium Revenue, Corporate Recovery, and Market Share

The above is the analysis of the conflicting points in this earnings call

Date of Call: October 9, 2025

Financials Results

• Revenue: $15.2B, up 4.1% YOY
• EPS: $1.71 per diluted share
• Operating Margin: 11.2%

Guidance:

• Q4 revenue expected to grow 2%–4% YOY; unit revenue positive; PRASM improving sequentially, especially domestic and transatlantic.
• Q4 EPS guidance $1.60–$1.90; operating margin 10.5%–12%; earnings comparable to Q3.
• FY25 EPS ≈ $6; free cash flow outlook $3.5–$4.0B.
• Nonfuel unit cost growth low single digits for Q4 and full year.
• Strong Q1 demand setup; transatlantic shoulder-season strength to persist.
• ~40 aircraft deliveries this year and next; growth skewed to premium seats; ongoing fleet renewal.
• MRO growth double-digit long term (Q4 ~flat); cargo growth to moderate from Q3.
• Monitoring U.S. government shutdown; impact estimated at < $1M/day; no material effect to date.

Business Commentary:

* Revenue Growth and Financial Performance: - Delta Air Lines reported revenue growth of 4% in the September quarter, with a record third quarter revenue of $15.2 billion. - The growth was driven by strong performance in premium, corporate, and loyalty segments, as well as a rebound in business travel.

• Premium Revenue and Product Strategy:
• Premium revenue grew 9%, outpacing Main Cabin trends, with over 30% of the incremental premium seats coming from retrofits.

• The company attributes this growth to increased premium product availability and strong demand from affluent customers.

• Corporate Travel Recovery:

• Corporate sales trended positively, up 8% year-over-year, with domestic corporate sales growing double digits.

• The recovery is supported by strong bookings indicating continued growth in corporate travel volumes.

• Cost Efficiency and Workforce Optimization:

• Delta achieved nonfuel unit cost growth of approximately flat to prior year, maintaining a year-to-date nonfuel unit cost growth of less than 2%.
• This was achieved through efficiency gains from workforce scaling and airport infrastructure investments.

Sentiment Analysis:

• Record Q3 revenue ($15.2B) with 11.2% operating margin and EPS of $1.71. Management expects another double-digit operating margin in Q4 with earnings comparable to Q3. FY25 EPS guided to ~ $6 and free cash flow raised to $3.5–$4.0B. Corporate sales up 8% YOY with accelerating trends; premium and loyalty revenue each up 9%. Nonfuel unit cost growth kept to low single digits.

Q&A:

• Question from Duane Pfennigwerth (Evercore ISI): What drove the strong improvement in cash flow—booking curve normalization vs. working capital or MRO dynamics?
  Response: Working capital efficiency was the primary driver; booking curve has not fully normalized and should improve in Q4.

• Question from Duane Pfennigwerth (Evercore ISI): Ex-CrowdStrike, how recovered is corporate demand?
  Response: Corporate revenue is slightly above 2019; passenger volumes are still in the high-70% of 2019, leaving runway for further recovery.

• Question from Thomas Fitzgerald (TD Cowen): Are domestic gains unique to Delta given higher-income exposure?
  Response: Yes—Delta’s affluent customer mix is supporting outperformance, with momentum accelerating into Q4.

• Question from Thomas Fitzgerald (TD Cowen): How will new aircraft affect premium mix into 2026–2027?
  Response: Most growth will be in premium; new deliveries and retrofits increase premium seat mix.

• Question from Catherine O'Brien (Goldman Sachs): How far along are efficiency gains from workforce, fleet and airport scale?
  Response: Early-to-middle innings; multi-year runway from scaling assets and technology-enabled productivity.

• Question from Catherine O'Brien (Goldman Sachs): Color on domestic Main Cabin turning positive and premium retrofits?
  Response: Premiumization from retrofits (25%–30% of added premium seats) plus new aircraft; Main Cabin seats roughly flat; reduced competitor capacity in hubs supports unit revenues.

• Question from Jamie Baker (JPMorgan): What’s driving premium growth vs. Main Cabin softness—behavioral changes among SkyMiles members?
  Response: Structural shift to paid premium with high repeat rates; coastal investments and corporate strength sustain premium demand.

• Question from Jamie Baker (JPMorgan): How much of premium is corporate?
  Response: Approximately 30%–40%; high-yield leisure often matches/exceeds corporate, occasionally constraining corporate seat availability.

• Question from Conor Cunningham (Melius Research): Profitability by cabin segment?
  Response: Premium cabins now carry the highest margins, increasing with product tier; Premium Select margins have approached Delta One.

• Question from Conor Cunningham (Melius Research): Corporate sales strength—share gains vs. CrowdStrike effect?
  Response: Share gains and broad momentum drove growth; September was +9% without CrowdStrike, aided by pent-up demand after early-year pause.

• Question from Andrew Didora (BofA Securities): Why was Atlantic RASM weak and how to fix it?
  Response: Late booking/price strategy, spring demand swoon, and seasonality mix; next year: book Main Cabin earlier and flatten peak capacity.

• Question from Michael Linenberg (Deutsche Bank): Financial impact of the government shutdown?
  Response: Estimated at less than $1M per day now (vs. about $1M/day previously), partly due to softer DCA trends.

• Question from Sheila Kahyaoglu (Jefferies): Atlantic capacity outlook and product stance vs. competitors?
  Response: Maintain best-in-class widebody product; no narrow-bodies across Atlantic; 2026 summer growth likely very low single digits, with shoulders slightly higher.

• Question from Savanthi Syth (Raymond James): Latin America trends and maintenance inflation into 2026?
  Response: Long-haul LatAm strong into winter; Caribbean solid; Mexico beaches pressured but profitable. Maintenance inflation easing but still elevated; 2026 heavy check plan TBD.

• Question from Scott Group (Wolfe Research): Q4 earnings matching Q3—new seasonality or Q3 under-earn?
  Response: Both: Q4 benefits from premium/corporate seasonality and calendar; opportunity to improve next summer’s Atlantic performance.

• Question from Scott Group (Wolfe Research): Sustainability of MRO and cargo growth?
  Response: MRO should grow double-digit long term but Q4 ~ flat; cargo growth to moderate from Q3’s +19%.

• Question from Ravi Shanker (Morgan Stanley): 1Q planning given last year’s close-in weakness; transatlantic shoulder strength?
  Response: Entering 1Q with robust demand; expect shoulder-season strength in transatlantic to continue.

• Question from Brandon Oglenski (Barclays): What drives margin expansion toward mid-teens?
  Response: Faster growth in premium and loyalty, fleet renewal, low single-digit cost growth, and tech-enabled efficiency; balanced industry capacity helps.

• Question from Brandon Oglenski (Barclays): Sustainability of co-brand momentum?
  Response: Premium card acquisitions and spend mix drive double-digit co-brand growth; expected to remain strong into 2026.

• Question from Thomas Wadewitz (UBS): For 2026, do you need Main Cabin growth to hit multi-year EPS targets?
  Response: Main Cabin has inflected and is expected to improve alongside continued premium and card growth.

• Question from David Vernon (Bernstein): Are hub trends stronger than point-to-point markets and implications for 2026 framework?
  Response: Broad-based improvement with strongest gains in coastal gateways; if current conditions persist, 2026 setup is strong though planning is ongoing.