Delta’s earnings took a big third quarter hit as a result of the recent CrowdStrike cybersecurity debacle, causing the airline to slightly miss Wall Street’s estimates. The mixed report initially caused the stock to plunge 5% in premarket trading Thursday morning before shares steadied before the bell. The stock is trading above the $50 mark at the time of publication, up nearly 25% for the year.
Delta struggled to recover from the massive IT outage in July after a failed software update from CrowdStrike, a prominent cybersecurity company, crippled Microsoft systems around the world. The airline was forced to cancel roughly 7,000 flights in the peak of summer travel season, resulting in a $380 million hit to revenue.
Almost 45% of the total, or $170 million, went to non-fuel expenses such as refunding customers in cash or travel miles and costs to accommodating the airline’s affected crews. Overall, Delta said the incident resulted in a 45-cent dent to earnings per share, which came in at $1.50, down 26% from the same quarter last year.
Delta CEO Ed Bastian said in interviews that the company is seeking to be fully compensated by both CrowdStrike and Microsoft for the outage.
“We had 86 great days, and we had five days that were impacted, caused by CrowdStrike,” he told Yahoo Finance.
Delta looks ahead to “choppy” Q4
Last quarter was a tough earnings season for the airline industry, which struggled with oversupply after trying to respond to hot travel demand as the coronavirus pandemic waned. Delta’s revenue increased sequentially for the quarter, however, with the boost largely driven by premium seating and the company’s loyalty program.
That revenue boost for Delta also underscores why Southwest Airlines is abandoning its famous open-seating policy under activist pressure from Elliott Management, and adding premium seats.
Delta’s premium and loyalty products accounted for 57% of total revenue for the quarter, with revenue growth for premium offerings outpacing the main cabin for both domestic and international flights.
The airline forecast fourth-quarter revenue to increase between 2 to 4% from last year, compared to estimates of a 4.1% increase, per CNBC. In the earnings release, Delta president Glen Hauenstein said the airline anticipated a 1% hit to revenue from reduced travel demand around the November election, but the airline also expects strong bookings around the holiday season.
“We do anticipate seeing a little choppiness around the election, which we’ve seen in past national elections,” CEO Ed Bastian told CNBC. “Consumers will, I think, take a little bit of pause in making investment decisions, whether its discretionary or other things. I think you’re going to hear other industries talking about that as well.”
Other airlines should also comment on these trends as Q3 earnings season gets in full swing. Rivals United and American Airlines report next week on Wednesday and Thursday, respectively.