Delta Airlines Faces Earnings Setback Amid Cybersecurity Crisis
Delta Airlines recently reported a significant hit to its earnings for the third quarter of 2024, primarily due to the fallout from a cybersecurity incident involving CrowdStrike, a leading cybersecurity firm. This debacle not only disrupted Delta’s operations but also caused the airline to slightly miss Wall Street’s earnings estimates, leading to a tumultuous reaction in the stock market.
The Impact of the CrowdStrike Outage
In July, a failed software update from CrowdStrike resulted in a widespread IT outage that crippled Microsoft systems globally. Delta was one of the many companies affected, forced to cancel approximately 7,000 flights during the peak summer travel season. This disruption had a staggering financial impact, costing the airline an estimated $380 million in lost revenue.
Of this total, nearly 45%, or $170 million, was attributed to non-fuel expenses, including customer refunds and accommodations for affected crew members. The incident ultimately resulted in a 45-cent reduction in Delta’s earnings per share, which came in at $1.50—down 26% from the same quarter last year.
Stock Market Reaction
The mixed earnings report sent Delta’s stock plunging by 5% in premarket trading on Thursday morning. However, shares steadied before the market opened, maintaining a trading price above the $50 mark. Despite the setback, Delta’s stock is still up nearly 25% for the year, reflecting a generally positive outlook prior to the incident.
Seeking Compensation
Delta’s CEO, Ed Bastian, has publicly stated that the airline is pursuing full compensation from both CrowdStrike and Microsoft for the financial losses incurred due to the outage. In an interview with Yahoo Finance, Bastian emphasized the contrast between the airline’s operational success prior to the incident and the chaos that ensued during the outage. “We had 86 great days, and we had five days that were impacted, caused by CrowdStrike,” he remarked.
Looking Ahead: A “Choppy” Q4
As Delta navigates the aftermath of the CrowdStrike incident, the airline is bracing for a potentially challenging fourth quarter. The broader airline industry is experiencing a tough earnings season, grappling with oversupply issues after ramping up capacity in response to surging travel demand post-pandemic.
Despite these challenges, Delta reported a sequential increase in revenue for the quarter, largely driven by its premium seating offerings and loyalty program. In fact, premium and loyalty products accounted for 57% of Delta’s total revenue, with growth in these areas outpacing that of the main cabin for both domestic and international flights.
Revenue Forecasts and Market Trends
Looking forward, Delta has forecasted a revenue increase of 2% to 4% for the fourth quarter compared to the previous year, slightly below analysts’ expectations of a 4.1% increase. Glen Hauenstein, Delta’s president, noted that the airline anticipates a 1% hit to revenue due to reduced travel demand surrounding the upcoming November elections. However, he also expressed optimism about strong bookings during the holiday season.
CEO Ed Bastian acknowledged the potential for “choppiness” around the election period, a trend historically observed in past national elections. He indicated that consumers might pause on discretionary spending, which could impact travel decisions.
Industry Implications
As Delta prepares for the fourth quarter, other airlines are also expected to comment on similar trends in their upcoming earnings reports. Rivals United Airlines and American Airlines are set to release their earnings next week, and their insights will be crucial in understanding the broader dynamics at play in the airline industry.
Conclusion
Delta Airlines’ third-quarter earnings report serves as a stark reminder of the vulnerabilities that even major corporations face in an increasingly digital world. The CrowdStrike cybersecurity incident not only disrupted operations but also highlighted the interconnectedness of technology and business continuity. As Delta looks to recover and adapt, the airline industry as a whole will be watching closely to see how these trends unfold in the coming months.