Higher costs and low base fares send Delta’s profit down 29%. The airline still earned $1.31 billion
Americans are traveling in record numbers this summer, but Delta Air Lines saw second-quarter profit plunge 29% due to higher costs and industry-wide cuts to base fares.
The airline also forecast lower profits than Wall Street expected for the third quarter.
Shares fell 8% before the opening bell on Thursday, and shares of other airlines also fell.
Delta said on Thursday that the company earned $1.31 billion in the April through June period, down from $1.83 billion a year earlier.
Revenue rose 7% to nearly $16.66 billion, a company record for the quarter. That’s no surprise to anyone who’s been to an airport lately. The Transportation Security Administration has more than 3 million travelers on Sundaya one-day record.
“Demand has been really strong,” CEO Ed Bastian said in an interview. “International, business (travel), our premium sector all outperformed.”
Delta’s results showed a continued gap between front-of-the-line and economy-class passengers. Revenue from premium passengers rose 10% — about $500 million — but main-cabin sales were flat compared to a year earlier.
Wealthier Americans Benefit according to economists, due to strong increases in stock prices and home values, while middle-class families are more likely to hold back on spending because high inflation have reduced their salaries over the past three years.
Delta, United and other airlines are increasingly targeting premium passengers with better seats, food, airport lounges and other amenities.
“Our affluent customers make a meaningful contribution to our growth, which is why we continue to offer them more and more products,” says Bastian.
But Bastian disputed any notion that middle-class travelers are spending less. He said it’s simply supply and demand — the airline industry, including low-fare carriers, is adding flights even faster than demand is growing, leading to lower fares. “The discounts fall into the lower-fare category,” he said.
Delta plans to add flights more slowly for the rest of the year, and Bastian said he thinks other airlines will follow suit, which could give carriers more pricing power. Delta doesn’t disclose average fares, but passengers paid 2% less per mile in the second quarter, and there were a few more empty seats on the average flight, compared with a year earlier.
Delta’s revenue growth was more than offset by higher costs. Expenses rose 10%, with labor, jet fuel, airport fees, aircraft maintenance and even the cost of running the oil refinery all rising sharply.
Labor spending rose 9% from a year ago. The airline hired thousands of new workers as the travel industry began to recover from the coronavirus pandemic, but hiring has been limited to replacing workers who leave or retire. Delta laid off an undisclosed number of nonunion office workers last fall, suggesting management felt the company was overstaffed.
Delta, based in Atlanta, reported profit excluding one-time items of $2.36 per share, a penny shy of the average forecast of analysts in a FactSet survey.
The airline said it expects adjusted third-quarter earnings to be between $1.70 and $2 per share, below analysts’ forecast of $2.04 per share. Delta reiterated its previous forecast for full-year earnings of $6 to $7 per share.
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Christopher Rugaber in Washington contributed to this report. David Koenig reported from Dallas.