Delta Air Lines reports weaker quarterly profit as fuel costs surge

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Delta Airlines quarterly profit

Highlights

Delta Air Lines' second-quarter revenue rises 14 per cent to $19.8bn, but net income drops 25 per cent to $1.6bn due to a 77 per cent surge in jet fuel costs to $4.4bn.
Delta maintains full-year guidance for 20 per cent earnings growth amid robust premium and loyalty travel demand, with sales from loyalty awards and premium tickets rising 19 per cent and 17 per cent, respectively.
Delta cuts passenger capacity by 3.5 per cent in the quarter but plans to keep capacity flat in Q3 and resume Tel Aviv flights and launch a Riyadh route in Q4.

Second-quarter earnings and fuel cost pressure

As reported by Financial Times, Delta Air Lines says second-quarter revenue rises 14 per cent to $19.8bn between April and June, while net income falls 25 per cent from a year earlier to $1.6bn as fuel expenses climb sharply.

Jet fuel costs reach the highest quarterly level in the airline's history, rising 77 per cent from last year to $4.4bn. Delta says it keeps in place an April increase in passenger surcharges to partly offset the higher costs, and still absorbs 60 per cent of the fuel increase in the quarter.

The airline says it expects fuel prices to fall to $3.15 per gallon in the current quarter from $3.93 in the most recent period. It remains unclear whether that estimate reflects renewed hostilities between the U.S. and Iran after their weakening peace agreement.

Travel demand remains firm despite broader risks

Delta says it maintains its full-year guidance for 20 per cent earnings growth and expects strong summer travel demand. Chief executive Ed Bastian tells the FT that the airline's more premium customer remains financially healthy, helping support spending on higher-value travel products.

Sales from loyalty travel awards and premium tickets rise 19 per cent and 17 per cent, respectively, from a year earlier. Revenue from premium tickets exceeds main cabin revenue in the three months to the end of June, while main cabin revenue posts double-digit growth for a second straight quarter, with domestic and international revenue up 2 per cent and 8 per cent, respectively.

Delta cuts passenger capacity by 3.5 per cent between April and June in response to rising fuel prices. Bastian says capacity should remain relatively flat in the current quarter before normalising in the fourth quarter, when the airline also plans to resume flights to Tel Aviv and launch a new route to Riyadh, despite continuing tensions in the Middle East.

In our earlier article on renewed U.S.–Iran tensions and their effect on crude markets, we outlined how the strain on the ceasefire and continued strikes were keeping a geopolitical risk premium in oil on fears of disruption near the Strait of Hormuz. We also noted that shifting U.S. sanctions and mixed inventory signals were adding volatility even without a confirmed interruption to oil flows.

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