What happened

Delta Air Lines (DAL -1.62%) beat analyst expectations in the third quarter but warned it expects the last three months of the year to be weighed down by higher fuel costs. Investors are heading for the exits on Thursday, sending shares down about 5%.

So what

Delta earned $0.30 per share in the quarter, well ahead of analyst expectations of $0.17 per share, on revenue that at $8.3 billion roughly matched expectations. The airline said it experienced a midquarter lull as COVID cases spiked higher, but traffic recovered toward the end of the period.

A Delta plane on the tarmac.

Image source: Delta Air Lines.

But the airline is not as upbeat about the fourth quarter, warning that higher fuel prices could cause it to report a loss. Delta is forecasting an average fuel price of $2.40 per gallon in the current quarter, up from $1.94 per gallon in the third quarter.

"While demand continues to improve, the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter," CEO Ed Bastian said in a statement. "As the recovery progresses, I am confident in our path to sustained profitability as we continue to provide best-in-class service to our customers, strengthen preference for our brand, while creating a simpler, more efficient airline."

Delta and other airlines have yet to see a full recovery following the pandemic. Compared to the third quarter of 2019, domestic revenue was down 28% and international was down 58%.

Now what

The next few months might be difficult, but Delta appears to be flying in the right direction. The airline appears on track to be profitable in 2022, aided by a gradual return in business travel. Delta said that third-quarter domestic corporate travel was about 40% of pre-pandemic levels, but management expects that number to improve heading into the new year.

It is difficult to predict what twists lie ahead as we continue to battle the pandemic, and for that reason it's tough to say exactly when a full recovery will take hold. But Delta looks well positioned to weather the storm and be among the industry leaders when conditions finally normalize. The airline ended the quarter with $15.8 billion in total liquidity, including a $2.6 billion undrawn revolver, and continues to put excess cash toward healing its balance sheet.

In the past 12 months, Delta has reduced its final obligations by $12 billion.

For those with a long time horizon, there is arguably no better airline to own than Delta. Just recognize that there is likely more turbulence up ahead.