Delta Air Lines delivers a profit, but faces fuel-cost pressure

CEO Ed Bastian said Delta 'didn't get derailed by the variant'

Delta Air Lines Inc. posted a quarterly profit as travel demand began to recover in recent weeks despite the spread of a more contagious Covid-19 variant, though the company said it faces pressure from rising fuel prices.

Delta on Wednesday reported a third-quarter profit of $1.2 billion. It was the airline's second quarterly profit since the pandemic began and the first time that it earned money without including government aid. Excluding that and other items, Delta posted an adjusted profit of $194 million. 

Ticker Security Last Change Change %
DAL DELTA AIR LINES, INC. 39.74 -0.66 -1.63%

CLICK HERE TO READ MORE ON FOX BUSINESS

Travel demand roared back this summer before the spread of the Delta variant threatened to bring airlines' recovery to an abrupt halt. While "the variant" -- as Delta Air Lines refers to it -- caused bookings to slow and revenue to dip, the impact was modest and temporary, Chief Executive Officer Ed Bastian said in an interview.

"We didn't get derailed by the variant," he said.

While airlines tempered their outlooks and cut back on flying as the variant caused people to hold off on making travel plans and cancel existing trips, carriers have said recently that demand has stabilized or started to return. American Airlines Group Inc. said Tuesday that its third-quarter revenue will likely be 25% below 2019 levels, "on the better end" of what the company had previously anticipated. 

Planes belonging to Delta Air Lines sit idle at Kansas City International Airport on April 03, 2020 in Kansas City, Missouri.  (Photo by Jamie Squire/Getty Images / Getty Images)

Mr. Bastian said bookings have been growing in the past five weeks and corporate travel bookings have reached a fresh pandemic high. Domestic business volumes are close to 50% recovered as of last week, he said, albeit not as strong as the airline had been hoping for before companies started to delay returning to offices.

GET FOX BUSINESS ON THE GO BY CLICKING HERE  

In the fourth quarter, Delta said it expects its revenues to be more than 70% recovered from 2019, up from 66% recovered in the third quarter. Demand for holiday travel appears strong and the reopening of international travel will add to demand in coming months, he said. The U.S. has said it plans to remove travel bans that barred people from several countries from entering the U.S., and instead will require that non-Americans arriving from abroad show proof of vaccination. 

Still, airlines will face new challenges keeping a lid on their costs, with fuel prices and other costs set to rise, analysts say. Delta said it expects higher fuel prices to undercut its profit in the fourth quarter. The airline expects jet-fuel prices between $2.25 and $2.40 a gallon in the quarter, up from $1.94 in the third quarter.

In the past, airlines have been able to pass on higher fuel costs to customers by increasing fares, but there is generally a lag and it is unclear if customers will be more price sensitive as they return to travel.

"In the short term, that's our biggest inflationary pressure," Mr. Bastian said. 

US AIRLINES SAY COVID-19 VARIANTS AREN'T HURTING BOOKINGS

Airlines have had some operational stumbles as travel has rebounded and have raced to hire more workers. While Delta delayed and canceled fewer flights than major rivals over the summer, its customers often encountered hourslong waits for customer service over the phone, something the airline has been working to fix.

Mr. Bastian said Delta has made progress, but it will be another two to three months before the issue is resolved. Delta has so far hired more than 8,000 workers during the year and the airline isn't having trouble finding new staff, he said.

While other major carriers have announced they will require employees to be vaccinated against Covid-19 to comply with new rules for federal contractors -- including airlines -- Delta has held off. Mr. Bastian said Delta would comply with federal requirements, but believes its policies are working to persuade people to get shots.

Delta has started requiring unvaccinated employees to undergo regular testing, and next month it will start charging them an extra $200 a month for health insurance. Since that plan was announced, Delta's vaccination rate has climbed from about 75% of employees to 90%, Mr. Bastian said. The airline expects to have 95% of its employees vaccinated by November. Factoring in people who will be granted exemptions for religious or medical reasons, very few holdouts will likely remain, he said.

As a result, Mr. Bastian said he isn't concerned about any disruptions over the holiday season.

Unions that represent pilots at American and Southwest Airlines Co. have said there could be problems over the busy holiday season if pilots who object to vaccination are terminated, leading to staffing shortages.

"We're going to be well above the threshold for any disruptive activities," Mr. Bastian said.

Delta reported an adjusted profit of 30 cents a share excluding the government aid, beating the 15 cents a share profit analysts expected, according to FactSet.