Recasts top, adds comments from earnings call throughout, updates share price

By Rajesh Kumar Singh and Shivansh Tiwary

CHICAGO, April 8 (Reuters) - Delta Air Lines DAL.N on Wednesday pulled all planned capacity growth for the current quarter and forecast profit below Wall Street expectations, warning that soaring jet fuel prices driven by the Iran war would add more than $2 billion to its costs in the June quarter.

The Atlanta-based carrier also said it was holding off for now on giving an updated full-year outlook, with CEO Ed Bastian saying uncertainty over how long the fuel-price spike would last made that "imprudent."

The Middle Eastern conflict has upended cost assumptions for the global airline industry, with extreme swings in jet fuel prices forcing carriers to curb growth plans and rethink forecasts.

Jet fuel was priced at $4.81 a gallon on Tuesday, up from about $2.50 just before February's first U.S.-Israeli strikes on Iran, according to trade group Airlines for America. Delta said it expects to pay about $4.30 a gallon in the June quarter.

Late on Tuesday, U.S. President Donald Trump announced a two-week ceasefire with Iran, sparking a rally in airline shares and a fall in the oil price to below $100 a barrel.

Delta's shares were up 6% in midday trade. Southwest Airlines LUV.N, American Airlines AAL.O, United Airlines UAL.O and Alaska Airlines ALK.N were up between 7% and 11%.

"We woke up this morning with a very different set of fuel assumptions than we had when we went to bed," Bastian told analysts on Delta's earnings call.

However, he said the company expects oil prices to settle "higher for longer" than previously modeled, making near-term relief uncertain. Other airline executives have also said they do not see immediate relief.

Fuel typically makes up about a quarter of airline operating costs, leaving carriers particularly exposed when prices jump faster than fares, which are often set weeks or months in advance.

The speed of the current price surge marks the industry's first major post-pandemic stress test, inflating costs and testing how much airlines can pass on to travelers.

Bastian said it would accelerate structural change across the industry.

"It's going to separate the winners and force the weaker players to take some pretty significant steps to either get better or something else will happen," he said.

CARRIERS SLASH LOWER-MARGIN ROUTES

Delta said it would cut capacity by about 3.5 percentage points from its original plan, noting that its growth outlook now has a "downward bias" until fuel prices improve. The capacity reductions will primarily affect lower-revenue flying, such as overnight red-eye flights and some midweek services.

Other carriers have also begun trimming schedules, particularly on lower-margin routes and less time-sensitive travel, to conserve fuel and protect margins. Since March 13, U.S. airlines have cut planned domestic capacity growth by more than half a percentage point.

So far, airlines have relied on still-strong travel demand to recoup a part of the higher fuel bill through fare increases, baggage fees and other ancillary charges.

Bastian said Delta aims to recover about 40% to 50% of higher fuel costs in the second quarter. The airline also announced plans on Tuesday to raise checked-bag fees for new bookings, following similar moves by United Airlines UAL.O and JetBlue Airways JBLU.O.

Bastian signaled the higher fees could stick. "At this level of fuel, it's hard to call anything temporary," he said.

He played down concerns that the higher fares and fees could weigh on demand, saying ticket sales have risen at a double-digit pace year-on-year over the past month, with momentum carrying into the second quarter.

Higher-income travelers remain resilient and Delta has yet to see any impact on demand, he said.

Unlike its major rivals, Delta has a buffer in the form of a subsidiary-owned ​refinery in Pennsylvania. It expects a $300 million benefit from the refinery in the second quarter, up from about $60 million in the March quarter.

Delta expects adjusted earnings of $1.00 to $1.50 per share in the June quarter. The midpoint of the forecast, $1.25 per share, is below the $1.41 analysts expect on average, according to LSEG.

For the March quarter, the airline reported adjusted earnings of 64 cents per share, topping analysts' expectation of 57 cents.

In January, it forecast full-year adjusted earnings of $6.50 to $7.50 per share. Analysts now expect earnings of $5.40 per share, according to data compiled by LSEG.