01:56 PM EDT, 10/14/2024 (MT Newswires) -- Delta Air Lines ( DAL ) said a slower rate of capacity growth should help drive revenue acceleration in the fourth quarter.

Excess capacity, which forces airlines to discount fares to fill seats and weighs on revenue, grew at a rate of 4% in the third quarter, down from 8% in the second quarter. Domestic capacity led the way down at 3% growth. The company is calling for overall capacity growth of 3% to 4% in the fourth quarter, driving revenue acceleration of 2% to 4%.

"Domestic capacity, based on filed schedules through the weekend, now stands at 1.8%," down from a previous expected gain for more than 4% in the fourth quarter, JPMorgan analyst Jamie Baker said in a note to clients. "This represents one of the tightest 'peacetime' domestic outlooks we can recall."

Delta executives expect to see continued revenue benefits from lower capacity levels in early 2025, led by domestic and other business lines improving.

"Domestic [revenue] is going to be quite strong given the capacity levels that we're exiting the year from, and I think trans-Atlantic will follow right behind," Delta President Glen Hauenstein said Thursday on a call with analysts. "We have a lot of lapsing in Pacific in terms of capacity that we've added this year that I think will be better next year. So we have some uplift there."

Countering the boost to revenue from reduced capacity growth are forecasts for reduced travel demand during the US elections in November. Delta expects the elections to have a 1-point impact on unit revenue.

Domestic travel often slows around elections in the US, Hauenstein said.

"We said in the comments that it's domestic, but it's also short-haul Latin," he said. "It's pretty much across the board that those two weeks [around the election] are underperforming the trends before and after those weeks."

Delta's implied revenue per seat mile shows a drop of 0.48%, compared with the Street's expectation of a 0.4% gain, while the airline's guidance also implies an 8% decline in fuel prices and a 1% headwind from the elections, meaning the outlook "isn't entirely clean," Bernstein analyst David Vernon said in a note to clients.

The company last week reported adjusted earnings of $1.50 per diluted share in the third quarter, down from $2.03 a year earlier and below the Capital IQ consensus analyst estimate of $1.53. Revenue rose to $15.68 billion from $15.49 billion, topping the consensus estimate of $15.29 billion.

The global tech outage in July caused by the update CrowdStrike (CRWD) deployed on Microsoft (MSFT) Windows systems had a direct revenue impact of $380 million in the third quarter and dragged down earnings by $0.45 a share, Delta said.

The airline guided for adjusted earnings per share of $1.60 to $1.85 in the fourth quarter. The guidance midpoint trails the Capital IQ consensus analyst estimate of $1.76. Shares dropped following the earnings release before paring losses.

"Street may take issue with a guidance range that is at best in line on lower than expected fuel, but the initial market reaction of down 5.6% seems overdone," Vernon said.

Price: 52.83, Change: +1.50, Percent Change: +2.91