It seems that Delta Air Lines, in fact, is not immune to the problems that have plagued much of the US air travel industry over the past year: high costs and stiff competition.
The Atlanta-based carrier earned more than $1.3 billion between April and June, the company said Thursday. To be clear, it’s best done by any airline — although we’ll have to see how United Airlines does next week.
But Delta’s profitability fell short of Wall Street expectations and its own performance in the second quarter of last year.
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It’s the latest example of a major US carrier’s disappointing financial results despite rising demand for air travel in recent months.
July 7 was the busiest day ever at US airports, with more than 3 million passengers screened for the first time in history, according to a Transportation Security Administration report. Nine of the 10 busiest days ever at TSA checkpoints came from Memorial Day weekend.
But that hasn’t translated to record success for airlines.
Stiff competition comes to Delta as well
Carriers are facing higher costs for fuel, staffing and maintenance – not to mention the effects of fierce competition due to a market overflowing with capacity.
Between April and June, airlines flew a total of 5.6% more seats on domestic routes than in the second quarter last year, according to data from aviation analytics firm Sirius.
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Domestic seats were up 6.5% from 2019.
As TPG reported in June, all of those flights — and seats — have reduced fares given the rules of supply and demand. it is Travelers have access to a plethora of flight deals not seen in years. That’s welcome news for consumers but less so for airlines trying to turn a profit.
Other airlines have reported struggling to fill all these seats and make money for months. Budget airlines have spent much of 2024 shuffling their networks, often pulling planes from particularly competitive cities like Orlando.
Southwest Airlines last month lowered forecasts for its financials. American Airlines did the same – and its CEO recently lamented the losses caused by recent “discounting” activity at the airline. The loss of pricing power, coupled with the fallout from a corporate sales strategy that backfired, could add stress to its earnings call later this month.
But we’ve heard concern (so far) from Delta, which has consistently led all US airlines in profitability since the coronavirus pandemic.
“Domestic industry seat growth accelerated during the summer months, which impacted yield performance in the main cabin,” Delta CEO Ed Bastin acknowledged Thursday in a conference call with analysts.
It begs the question: If Delta has run into hiccups, what does that mean for its competitors — the airlines it has consistently trailed in recent years?
“We viewed Delta as more immune,” TD Cowen analyst Helen Baker wrote on Thursday, adding that Delta’s results overall “raise concerns about the health of the industry”.
Silver linings abound
It’s certainly not bad news for Delta.
The company brought in more money on Sunday than any other day in its history, he said — a sign that he took advantage of what was the busiest day ever at U.S. airports.
Travel demand does not decrease
Delta isn’t seeing signs of an overall appetite for travel, either.
“Our core customer base is healthy, and demand for premium products is moving beyond the core cabin,” Bastin said. The latter is a trend that will obviously help Delta, with its heavy emphasis on premium seats, get a leg up on its competition.
The $1.9 billion brought in during the second quarter by its American Express partnership doesn’t hurt either. That figure got a boost from 30% Delta SkyMiles members, executives said, now hold Delta-Amex credit cards (a percentage consistent with figures the company shared last year).
Business travel giving lift to Delta
Delta also believes that the fall months will bring better results.
Early figures show that the corporate travel boom seen earlier this year could be a major boost between 2021 and 2023 following a backlog of business trips that have plagued airlines.
While corporate and business travel are generally more lucrative for airlines than leisure travel, customers are less price-sensitive than travelers flying on their own money.
Europe is still a boon – with 1 huge exception
But another post-pandemic trend TPG noted earlier this year remains alive and well, Delta leaders noted Thursday. That is, travelers flying across the Atlantic go well beyond the hottest summer months.
“Whether it’s… whether it’s retirees, double-income earners or not, and kids who don’t worry about school,” Delta President Glenn Hauenstein said, “we really expand into September, and October. Looking at, and indeed November, that European demand, across the board, remains strong.”
That’s certainly welcome news for Delta, considering the 2024 Paris Olympics is likely to hit $100 million this summer, officials said; Tourists not attending the Olympic Games often go out of their way to avoid the host city.
Industry capacity is light
Delta will take advantage of a slimmed-down flight schedule across the board later this year, he says, as a number of airlines slow (or, in some cases, reverse) domestic flights seen in recent years.
“Domestic capacity is clearly moderating,” JPMorgan Chase analyst Jamie Baker wrote Thursday, while offering a still gloomy forecast for struggling carriers. “The bad news,” Baker added, “is that we have yet to identify a path back to sustained profitability for airlines under pressure.”
An optimist will not lose that ground
Still, Delta believes it will maintain its edge, even as others — such as budget airlines — try to compete with mostly larger carriers. Blocking middle seats and reducing change fees.
John F. of New York. “Premium is more than just having space in the seats. It’s the overall experience,” said Bastian, noting the recent opening of the carrier’s Delta One lounge at Kennedy International Airport (JFK). And the top spot was recently claimed by Delta. In TPG’s 2024 Best Airlines report.
“The cost of service has gone up for everyone, but especially the discounters,” Bastin said of budget airlines. “And the only way you can cover that is by providing a better experience.”
Delta is expected to capture nearly half of the US airline industry’s profits in the first half of 2024. Other carriers will report their second-quarter financial results this month, with United — Delta’s top rival — starting next week.
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