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Ahead of this morning's annual Investor Day, Delta Air Lines (DAL) released a batch of financial guidance that paints a bullish picture of the air travel demand environment and DAL's plans to capitalize on a rising trend towards premium seats. However, costs are also expected to increase more than expected, dampening an otherwise upbeat outlook.

• DAL reaffirmed its Q4 EPS guidance of $1.60-$1.85 and its revenue growth forecast of +2-4%, adding that the industry backdrop is looking increasingly constructive as unit revenue trends head higher. Recall that when DAL reported Q3 results on October 10, it commented that supply growth continued to rationalize and that in September, both domestic and transatlantic unit revenue growth turned positive. These positive trends appear to be continuing into Q4, positioning DAL to materially improve upon the 3.6% decline in TRASM last quarter.
• A main theme of DAL's Investor Day is that expanding its premium seats and offerings will be a focal point of its growth strategy. In Q3, premium ticket revenue grew by 4%, far outpacing the 5% decline in main cabin ticket revenue. To build on that strength, DAL plans to add more premium seats to its fleet while its marketing efforts home in on millennial travelers who are spending more on travel than any other generation. In fact, DAL stated that nearly two-thirds of millennial customers are willing to pay for luxury travel.
• Compared to main cabin, margins for premium cabin are fifteen percentage points higher. As premium seats account for an increasingly larger portion of total seats -- DAL expects premium to exceed main cabin by 2027 -- the company's operating margins should expand. On that note, DAL's new 3–5-year financial framework calls for mid-teen operating margin expansion, driving 10% average annual EPS growth.
• Rising wages for pilots, flight attendants, and mechanics will continue to act as a headwind on the bottom-line. In Q3, non-fuel CASM increased by a healthy 5.7%, slightly above DAL's guidance of 5.5%. Looking ahead to 2025, the company is expecting non-fuel CASM to increase by low-single-digits yr/yr, compared to analysts' expectation for a yr/yr decline.

The main takeaway is that DAL sees mostly sunny skies ahead and so does the market, as illustrated by the stock's 70% surge higher since the beginning of August. There may be some disappointment that DAL chose to only reaffirm its Q4 guidance instead of raising it, but its plans to drive higher margins and EPS growth through an expanded premium business should bode well for the stock in the long run.