Current:Home > NewsHigher costs and low base fares send Delta’s profit down 29%. The airline still earned $1.31 billion-LoTradeCoin
Higher costs and low base fares send Delta’s profit down 29%. The airline still earned $1.31 billion
View Date:2024-12-23 19:45:29
Americans are traveling in record numbers this summer, but Delta Air Lines saw second-quarter profit drop 29% due to higher costs and discounting of base-level fares across the industry.
The airline is also predicting a lower profit than Wall Street expects for the third quarter.
Shares tumbled 8% before the opening bell Thursday and the shares of other carriers were dragged down as well.
Delta said Thursday it earned $1.31 billion from April through June, down from $1.83 billion a year earlier.
Revenue rose 7% to nearly $16.66 billion — a company record for the quarter. That is not surprising to anyone who has been in an airport recently. The Transportation Security Administration screened more than 3 million travelers Sunday, a single-day high.
“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 continuing divide between passengers who sit in the front of the plane and those in economy class. Revenue from premium passengers jumped 10% — about $500 million — but sales in the main cabin were flat with a year earlier.
Wealthier Americans are benefitting from strong gains in stock prices and the value of their homes, according to economists, while middle-class families are more likely to be holding back on spending because high inflation over the last three years has eroded their paychecks.
Delta, United and other airlines have stepped up their targeting of premium passengers with better seats, food, airport lounges and other amenities.
“Our more affluent customers are contributing meaningfully to our growth, and that’s why we continue to bring more and more product to them,” Bastian said.
But Bastian disputed any notion that middle-class travelers are pulling back on spending. He said it is 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 discounting is in the lower-fare bucket,” he said.
Delta plans to add flights at a slower rate for the rest of the year, and Bastian said he believes other airlines will too, which could give the 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 couple more empty seats on the average flight, compared with a year earlier.
Delta’s increase in revenue was more than offset by higher costs. Expenses jumped 10%, with labor, jet fuel, airport fees, airplane maintenance and even the cost of running its oil refinery all rising sharply.
Spending on labor grew 9% over last year. The airline hired thousands of new workers when travel began recovering from the coronavirus pandemic, but hiring now is mostly limited to replacing workers who leave or retire. Delta laid off an undisclosed number of nonunion office employees last fall in a sign that management considered the company overstaffed.
Atlanta-based Delta said its earnings, excluding one-time items, worked out to $2.36 per share, a penny less than the average forecast among analysts in a FactSet survey.
The airline said its adjusted profit in the third quarter will be between $1.70 and $2 per share, below analysts’ forecast of $2.04 per share. Delta repeated its previous prediction that full-year profit will be $6 to $7 per share.
___
Christopher Rugaber in Washington contributed to this report. David Koenig reported from Dallas.
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