Delta says water prices could help make a profit when fuel costs rise

The company reported an adjusted net loss of $ 784 million in the first quarter, which was about $ 50 million less than Wall Street analysts had expected. Its $ 9.3 billion revenue came in at about $ 400 million higher than expected. The company said it was profitable in March.

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

“Demand is phenomenal,” he told CNBC. “This continues in April. Consumers are ready to go.”

“There are clear signs of accumulated demand for travel and experiences as consumer spending shifts from goods to services and experiences, travel restrictions are lifted and business travelers continue to return to the clouds,” he told investors at a conference call later Wednesday morning. .

Bastian said demand for travel at the beginning of the quarter was negatively impacted by the increase in Covid cases from the Omicron variant, but that demand rose rapidly as this increase began to slow in mid-February. He added that so far there have been no signs of a negative impact on travel caused by the Russian invasion of Ukraine.

The strong demand has resulted in larger aircraft and higher prices. Unit revenue, a target for airfare prices, was to rise by more than 10% in the second quarter compared to the same period of 2019, Delta expects. Its unit turnover in March was higher than in March 2019, the first month since the start of the pandemic that the airline has achieved a positive comparison.

“We are successfully recovering a significant portion of the fuel surge,” Bastian told investors.

The first quarter is typically the slowest for U.S. airlines’ profits and revenue. But the second quarter, which includes the spring travel season and the start of summer travel, should get stronger.

An increasing number of workers are returning to the office after two years of teleworking, and business travel is expected to increase. The same is international travel. These passengers typically pay higher prices than leisure travelers on domestic flights.

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

Delta said it expects second-quarter sales to be between 3% and 7% lower than in the same period of 2019 before the pandemic severely disrupted air travel. Yet Delta flies only 84% of the capacity it flew 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 where it was before the pandemic.

Delta is doing what it can to increase capacity, Bastian said, including hiring the extra staff it needs to restore more flights to its schedule. But the 15,000 new employees the company has hired since the start of 2021 are still not enough to compensate for the loss of staff during the pandemic, as Delta offered early retirement and buyout packages to reduce the number of employees.

“Maybe by the end of the year, if we really pushed, we could get back to 100% [of pre-pandemic capacity]”he told CNBC. But he said it’s not the management’s current wish.

“Right now, for the amount of demand we have, we’re sitting in a pretty good place [on capacity],” he said.

Hauenstein added that the airline sees no decline in demand as prices rise. “We have not seen much resistance to the price points we have in the market,” he said.

But with a larger percentage of vacancies already booked for the summer travel 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 switching from a pandemic to a manageable seasonal virus, helping travel demand. And he added that it is time for the federal travel mandate to end. The CEOs of most U.S. airlines have also called for the mandate to expire.
CNN has learned that the Centers for Disease Control now plans to extend the mask mandate, which was due to expire on Monday, by another 15 days.
Bastian also revealed that from this month, Delta will drop a $ 200 monthly supplement on what its employees pay for health insurance if they are not vaccinated. Unlike some other airlines, such as United, Delta never demanded that its employees be vaccinated.

“We really believe the pandemic has moved to a seasonal virus,” he said of the reason for dropping the supplement.

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

But while admissions from Covid have declined, they are increasingly likely for those who have not been vaccinated. At the time Delta announced a supplement for its unvaccinated workers, Bastian said employees hospitalized with the disease cost the company an average of $ 50,000 each.

Yet Delta and the rest of the aviation industry are facing rising fuel prices.

Delta said it expects to pay an average of $ 3.20 to $ 3.35 per gallon for aviation fuel in the second quarter, up from $ 2.79 per gallon in the first quarter and only $ 2.06 per gallon in the first quarter of 2019.

But the company has one major advantage that most of its competitors do not have: it owns its own oil refinery. Higher fuel prices meant the refinery brought in $ 1.2 billion in revenue in the quarter, a sharp increase from just $ 48 million in the first quarter of 2019.

Shares of Delta (FROM) jumped 4% in dinner trading on news and guidance.

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