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Delta says hike fares can help it turn a profit as fuel costs rise

Travel is booming and Delta Air Lines has raised ticket prices. That helped the company deal with higher fuel costs in the first quarter, and Delta believes it can turn a profit in the second quarter.

The company reported an adjusted first-quarter net loss of $784 million, about $50 million lower than Wall Street analysts had expected. Its revenue of $9.3 billion is about $400 million higher than forecast. The company said it was profitable in March.

Travel demand is so strong right now that CEO Ed Bastian told CNBC that March was Delta’s best month for bookings — both for flights in March itself and for upcoming trips.

“The demand is phenomenal,” he said on CNBC. “It continues into April. Consumers are good to go.”

“There are clear signs of pent-up demand for travel and experiences as consumer spending shifts from goods to services and experiences, travel restrictions lift and business travelers continue to return to the world. sky,” he told investors on a conference call later Wednesday morning. .

Bastian said travel demand at the start of the quarter was negatively affected by the surge in Covid cases of the Omicron variant, but demand rebounded quickly as that surge began to subside in mid-February. He added that so far there were no signs of a negative impact on travel caused by the Russian invasion of Ukraine.

This strong demand has resulted in more complete aircraft and higher fares. Unit revenue, a measure of airfares, is expected to rise more than 10% in the second quarter compared to the same period of 2019, Delta predicts. Its unit revenue in March was higher than in March 2019, the first month since the start of the pandemic in which the airline achieved a positive comparison.

RELATED: CDC to extend federal mask mandate on planes, transit for 2 weeks

“We are managing to recover a significant portion of the fuel ramp-up,” Bastian told investors.

The first quarter is typically the slowest for US airline profits and revenues. But the second quarter, which includes the spring travel season and the start of summer travel, should be stronger.

A growing number of workers are returning to the office after two years of working remotely, and business travel is set to resume. International travel too. These passengers generally pay higher fares than leisure travelers on domestic flights.

Domestic business travel was still only around 50% of pre-pandemic levels throughout the first quarter, but by March it had risen to 70%. And a survey of corporate customers found that 90% expect travel to increase in the second quarter, said Delta President Glen Hauenstein.

Delta said it expects second-quarter sales to be 3% to 7% lower than the same period in 2019, before the pandemic severely disrupted air travel. Yet Delta is only flying 84% of the capacity it was flying at the time. Part of the reason is the continued restrictions on international travel – but even domestic capacity is still only back to 90% of what it was before the pandemic.

Delta is doing what it can to increase capacity, Bastian said, including hiring the additional employees it needs to restore more flights to its schedule. But the 15,000 new employees the company has hired since the start of 2021 is still not enough to offset the loss of staff during the pandemic, when Delta offered early retirement and buyout plans to reduce the workforce.

“Maybe by the end of the year, if we really pushed, we could be back to 100% (of pre-pandemic capacity),” he told CNBC. But he said that was not management’s current desire.

“Frankly, right now, for the amount of demand we have, we’re sitting in a pretty good spot (on capacity),” he said.

Hauenstein added that the airline is not seeing any decline in demand as fares increase. “We haven’t seen much resistance at the price levels that we have in the market,” he said.

But with a greater percentage of available seats already booked for the summer season than three years ago, price-sensitive customers need to book early and be flexible with their travel dates.

Bastian said Delta believes Covid is moving from a pandemic to a manageable seasonal virus, which is helping travel demand. And he added that it’s time for the federal travel mask mandate to end. Most US airline CEOs have also called for the term to expire.

CNN has learned that the Centers for Disease Control is now planning to extend the mask mandate, which was due to end on Monday, for another 15 days.

Bastian also revealed that starting this month, Delta is removing a $200 monthly surcharge on what its employees pay for health insurance if they are not vaccinated. Unlike some other airlines, like United, Delta has never required its employees to be vaccinated.

“We really think the pandemic has become a seasonal virus,” he said of the reason for the surcharge removal.

There is not yet a clear scientific consensus on the seasonality of Covid-19.

But if Covid hospitalizations are down, they are even more likely for those who are not vaccinated. At the time Delta announced a supplement for its unvaccinated workers, Bastian said employees hospitalized with the disease were costing the company an average of $50,000 each.

Yet Delta and the rest of the airline industry are facing soaring fuel prices.

Delta said it expects to pay an average of $3.20 to $3.35 per gallon for jet fuel in the second quarter, compared to $2.79 per gallon in the first quarter and just $2.06 per gallon in the first quarter. 2019.

But the company has one major advantage that most of its competitors don’t: it has its own oil refinery. Rising fuel prices helped the refinery generate $1.2 billion in revenue during the quarter, up sharply from just $48 million in the first quarter of 2019.

Shares of Delta jumped 4% in midday trading on news and tips.


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