Delta Air Lines Misses Profit Expectations in Q3 2024 Due to $380 Million Cybersecurity Loss, but Long-Term Prospects Remain Strong
What Happened? In Q3 2024, Delta Air Lines fell slightly short of profit expectations, posting adjusted earnings of $1.50 per share, just below the analyst forecast of $1.52 per share. The airline attributed this shortfall to a significant cybersecurity issue in July 2024, which caused a system outage, resulting in a $380 million revenue loss. Despite the missed expectations, Delta's overall revenue increased slightly to $15.7 billion, with a GAAP net income rising 15% year-over-year to $1.97 per share.
Delta has forecasted earnings per share for Q4 2024 to be between $1.60 and $1.85, with analysts expecting $1.71 per share. The company also anticipates a 2% to 4% increase in revenue. However, they warned of potential headwinds, such as a softening demand as the U.S. elections approach. Following the report, Delta’s stock dropped by approximately 6% in pre-market trading.
Key Takeaways
- Cybersecurity Incident’s Impact: A July 2024 IT outage caused by a cybersecurity breach resulted in a $380 million loss, significantly impacting Delta’s Q3 results.
- Stock Market Reaction: Despite missing expectations, many analysts remain optimistic about Delta’s long-term growth potential, maintaining buy ratings with price targets as high as $85.
- Future Outlook: Delta expects solid revenue growth for Q4 2024 but has highlighted concerns about weaker travel demand due to the upcoming U.S. election.
Deep Analysis Delta’s performance, while impacted by the cybersecurity incident, reflects a company with solid fundamentals. The July outage, linked to a breach in its IT infrastructure, hurt revenue significantly. The company's flat adjusted operating revenue of $14.6 billion, combined with the slight increase in total revenue to $15.7 billion, underscores the broader resilience of Delta’s operations, even in the face of unexpected disruptions.
Despite these challenges, Delta’s stock continues to receive favorable reviews from analysts. David Vernon of Bernstein highlighted Delta’s ability to benefit from lower competition and increased capacity, raising his price target to $65. Similar optimism was echoed by analysts at Morgan Stanley and Jefferies, who have set price targets as high as $85. The consensus view suggests that while Delta may face short-term turbulence, the company’s long-term trajectory remains robust, supported by strategic expansions and investments.
Delta’s key challenge going forward will be managing rising fuel costs and potential demand softening, particularly as the U.S. election nears. Historically, election years have seen a drop in consumer spending, especially in discretionary areas like travel, which could impact the company’s Q4 performance. Additionally, the cybersecurity incident highlights an increasing vulnerability for airlines, emphasizing the need for Delta to bolster its IT defenses to prevent further disruptions.
Despite these headwinds, Delta's operational strength, driven by its fleet upgrades, transatlantic expansions, and sustainability initiatives, positions the airline for future growth. These initiatives, combined with favorable analyst sentiment, suggest that the airline could experience a stock recovery in 2025, particularly if the geopolitical and economic environment stabilizes.
The Lawsuit
Delta Air Lines is pursuing legal claims against CrowdStrike, along with Microsoft, to recover damages stemming from the massive IT outage in July 2024. The outage, triggered by a faulty CrowdStrike software update, caused widespread flight cancellations and disrupted Delta's operations, leading to an estimated $500 million in losses, including $380 million in direct revenue loss. Delta's CEO, Ed Bastian, has been vocal about the airline's intention to seek compensation, accusing CrowdStrike of negligence and stating that the update was not properly tested or validated before being deployed.
CrowdStrike, however, disputes these claims and has pushed back against Delta’s accusations, arguing that Delta’s reliance on other IT systems, not CrowdStrike's, contributed to the extended downtime. The legal battle continues, with both companies defending their actions during the outage.
The incident has also drawn attention from the U.S. Department of Transportation, which is investigating why Delta took longer than other airlines to recover from the outage. This is a developing story.
Did You Know?
- Delta’s cybersecurity breach in July 2024 resulted in one of the most significant financial hits due to an IT outage in the airline industry this year. This event has placed greater emphasis on the importance of cybersecurity measures in aviation, as airlines are increasingly vulnerable to cyberattacks.
- Delta has accrued nearly $1 billion in profit-sharing for its employees in 2024, reinforcing its reputation as one of the most employee-centric airlines in the industry.
- The airline’s sustainability efforts include a commitment to developing sustainable aviation fuel (SAF), positioning Delta as a leader in the aviation industry’s push toward reducing carbon emissions.