Delta posts $735 million profit, sees strong revenue in Q3

Delta Air Lines said Wednesday that it earned $735 million in the second quarter, as packed planes and higher fares boosted revenue close to pre-pandemic levels.

However, the profit fell short of Wall Street expectations, and Delta’s shares fell more than 5% in midday trading.

Delta struggled in the quarter with rising fuel prices and the cost of canceling more than 4,000 flights in May and June.

“We had a rough six weeks,” CEO Ed Bastian said. “None of us were up to our best,” he said, referring to his own and other airlines.

Delta has hired thousands of workers and trimmed its schedule to run more smoothly, and those measures come at a steep cost. Delta expects to pay $700 million in overtime and premium pay to have enough people on the job the rest of the year.

Bastian said Delta is now nearly fully staffed, with a workforce that is only 5% smaller than in 2019 even as it operates 15% fewer flights.

Delta needed to go on a hiring spree — it has added 18,000 employees since the start of 2021 — to replace people that it encouraged to quit after the pandemic hit and travel collapsed. Now it faces a challenge to train new hires — “There’s a pretty big learning curve,” Bastian said — and that is compounded by lingering outages of employees due to COVID-19.

Bastian said he had no regrets about paying people incentives to quit back in 2020, when the industry was in dire condition and there were no vaccines against COVID-19. As a condition of $54 billion in federal pandemic aid, U.S. airlines were barred from laying off workers, but they weren’t prohibited from offering buyouts and early retirement bonuses, and tens of thousands of workers took the money.

Labor shortages are occurring across the airline industry. Delta said short staffing at European airports led to a baggage breakdown so severe that the airline made a special flight with only lost bags on board to reunite them with their owners in the U.S.

Shortly before July 4, airlines leaders were scolded during a virtual meeting with Transportation Secretary Pete Buttigieg, who implored the carriers to do better over the holiday weekend. They did — although airlines and federal officials have since traded blame for massive delays and cancellations so far this summer.

The Atlanta carrier had the most canceled flights over the Memorial Day and Juneteenth weekends. Bastian said Delta and other airlines tried too hard to make up for two years of pandemic and grab the most revenue they could while demand was hot. “We probably pushed ourselves too far,” he said in an interview.

Bastian said Delta recalibrated by eliminating planned growth this year, continuing to hire pilots and other workers, and relaxing the schedule by giving passengers more time to board.

The airline canceled 337 flights or about 1% of its schedule, in the first 11 days of July, and just 83 after July 3, a major improvement over earlier in the summer, according to figures from tracking service Flightaware.

While vacation travel is booming, analysts have urged caution about the period after Labor Day. Business travel, which becomes crucial to airlines once families go home and kids return to school, has not recovered as quickly as personal travel. Employers are still hiring, but recession is being talked about more. Consumers are worried about inflation.

Delta is betting that consumers still want to travel and they have money, partly because they’re no longer buying as much stuff for their homes. Delta executives cited their own survey and one by Morgan Stanley that point to an increase in business travel.

Delta Air Lines Inc. predicted that third-quarter revenue will be 1% to 5% higher than in the same quarter of 2019, even though it expects passenger-carrying capacity to be no more than 85% of 2019 levels — a sign that Delta expects higher fares to remain in place.

Oil prices have cooled recently, and that could give another lift to Delta. The airline spent more than $3.2 billion on fuel in the second quarter, an increase of 41% over the same quarter in 2019. Delta paid an average of $3.82 a gallon for jet fuel, but it expects to pay between $3.45 and $3.60 in the third quarter.

Other expenses, including labor, continue to rise. Delta expects non-fuel costs to jump 22% over 2019 levels on a per-mile basis in the third quarter.

In the April-June quarter, revenue was $13.82 billion, including $1.5 billion from Delta’s refinery near Philadelphia. Revenue minus the refinery came in just 1% below the same quarter in 2019, and that was only because of weak international traffic.

Passengers traveled 18% fewer miles on Delta than they did three years ago, but revenue per mile – a stand-in for average fares – rose 18%.

Those higher fares apparently didn’t discourage travelers, or at least not many of them. The average flight was 87% full, just one point lower than in early summer 2019. By airline standards, that is a high occupancy figure and indicates that many flights during desirable morning and early-evening hours were sold out.

Delta said that excluding irregular costs it earned $1.44 per share. That fell short of the $1.73 per share that analysts surveyed by FactSet expected.

Spending rose sharply for fuel and modestly for labor, compared with 2019, but Delta paid out only $54 million in profit sharing compared with $518 million three years ago.