(Bloomberg) -- Delta Air Lines Inc. forecast first-quarter profit short of Wall Street’s estimates, dragging down the carrier’s shares as higher costs deal a blow to its efforts to further capitalize on a rebound in air-travel demand.

Adjusted earnings will be 15 to 40 cents a share in the period, the airline said Friday in a statement that also detailed fourth-quarter results. Unit expenses this quarter, excluding fuel, will climb as much as 4% from a year ago, a forecast that Delta said includes “expected labor cost increases” and impacts from network rebuilding.

Analysts had predicted adjusted per-share profit of 54 cents on average, according to estimates compiled by Bloomberg. At least some analyst estimates did not incorporate the elevated costs.

See also: Flight Disruptions Ease as US Airlines Recover from FAA Meltdown

The outlook contrasts with Delta’s better-than-expected fourth-quarter results, suggesting a choppy travel recovery amid financial pressures and questions about consumer confidence. Leaders of the largest US airlines have remained bullish in their expectations that passengers will continue to pack planes as air travel returns from an early-pandemic slump.

Even as Delta warned of cost pressures Friday, Chief Executive Officer Ed Bastian said “the industry backdrop for air travel remains favorable” in 2023.

Delta’s shares tumbled 7.4% at 9:30 a.m. in New York, the biggest intraday drop in six months. The stock fell 16% last year.

The carrier’s rising expenses are due in part to a proposed four-year contract with pilots calling for at least 34% in cumulative pay hikes. The union is finalizing language in a preliminary agreement before leadership decides whether to send it to pilots for a vote. 

The company isn’t alone in negotiating pay increases. Its largest rivals, including American Airlines Group Inc. and United Airlines Holdings Inc., are in talks on new labor deals with pilots and other unions, including flight attendants in some cases.

In addition to labor, Delta is also grappling with costs related to work to rebuild its pandemic-reduced network ahead of peak summer travel. Costs for each seat flown a mile, a measure of efficiency, will fall 2% to 4% for the full year versus 2022, compared to the airline’s earlier view of a drop of as much as 7%.

‘Buying Opportunity’

Guidance was worse than expected for a seasonally weak quarter, but any dip in the stock could provide a “buying opportunity” for investors, Cowen analyst Helane Becker said in a note. “Demand remains strong, pricing is likely to remain favorable due to industry capacity constraints and the company is executing on growing non-main cabin revenues.”

Adjusted earnings last quarter were $1.48 a share, the company said, compared to analysts’ average estimate of $1.30. Revenue excluding refinery sales of $12.3 billion exceeded an expected $12.2 billion.

Delta is the first US airline to provide full quarterly financial results. A group of 11 domestic carriers should report fourth-quarter revenue growth of 12% from 2019 to $52.3 billion and a pre-tax profit of $2.8 billion, according to Michael Linenberg, a Deutsche Bank analyst.

American, which is scheduled to report fourth-quarter results Jan. 26, said Thursday that profit for the period will likely be almost double analysts’ estimates.

Demand has exceeded capacity across the industry recently as a pilot shortage and training bottleneck, delays in aircraft deliveries and supply-chain shortages have limited growth and allowed carriers to boost fares. Delta in December forecast annual profits this year, as well as in 2024.

The company on Friday reaffirmed that expectation, saying it would earn as much as $6 a share this year and more than $7 next.

First-quarter revenue excluding refinery sales will be 14% to 17% higher than the same period in 2019, Delta said.

FAA Breakdown

The industry had broadly recovered by late week from a breakdown in a key air-travel alert system that prompted authorities to briefly ground departures across the US on Jan. 11. That came several weeks after severe winter weather disrupted flying across the country.

Read more: Flight Departures Resume Across US After Nationwide Halt

Bastian said on CNBC Friday that the shutdown of the nation’s airspace this week was “unacceptable.” The Federal Aviation Administration isn’t receiving “the resources, the staffing, the funding” that it needs to update technology systems.

“Hopefully this will be the call to our political leaders in Washington that we need to do better,” he said.

(Updates with share trading in sixth paragraph.)

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