Delta Air Lines revenues are back from their two-year pandemic-driven dip as travelers, from leisure to corporate and international, rush back to planes this summer.
The Atlanta-based carrier forecasts a full revenue recovery to 2019 levels in the second quarter, Delta disclosed in an investor update on June 1. The airline generated $12.5 billion in revenue three years ago. The recovery comes despite system capacity being down roughly 82 percent year-over-three-years; that number includes a 1-2 point hit from Delta’s schedule reductions over the Memorial Day weekend holiday and in June.
“The demand has been phenomenal,” Delta CEO Ed Bastian said at a Bernstein investor conference on June 1. This is true across segments, including leisure, corporate and international, he added.
Delta is the latest U.S. carrier to lift its outlook on strong travel demand. JetBlue Airways and Southwest Airlines all raised their guidance on May 26, with JetBlue saying demand was “meaningfully better” than initially forecast. And American Airlines Chief Revenue Officer Vasu Raja said on May 26 that the carrier was “very encouraged by all the trends that we’re seeing.”
The buoyant outlooks come as U.S. airlines brace for operational challenges this summer. Staffing, both at airlines and air traffic control centers, plus weather and staff out with Covid-19 are taking their toll. Alaska Airlines, Delta, JetBlue, and Spirit Airlines have all proactively reduced capacity to mitigate disruptions, while American, Southwest Airlines, and United Airlines will fly less than initially hoped during the peak period.
Airfares this summer are up 25-30 percent compared to last year, Bastian said. That is slightly less than the 34 percent increase that Cowen & Co. analysts estimated on May 27. And the increase is expected to nullify high fuel prices with Bastian pointing out that Delta’s margin guidance, of roughly 14 percent in the second quarter, remains unchanged.
“The challenges we have now are on the other side of the house, the operations in terms of getting all the tools and the resources and the capabilities to serve the demand the way we need to,” Bastian said. Delta had an inauspicious unofficial start of summer with more than 700 flight cancellations over the Memorial Day holiday weekend, according to FlightAware. Bastian called the weekend performance “disappointing.”
The poor performance, plus lower capacity, forced Delta to raise its unit costs excluding fuel guidance by at least 3 points to up 20-22 percent compared to 2019 in the second quarter.
A big challenge for Delta, and other airlines, is training. The carrier faces a roughly 12-month pilot training “bubble,” as Bastian put it, that limits its ability to return to 2019 capacity levels. However, Delta does not face the shortage or higher attrition that other airlines do. The same cannot be said for its regional partners, though, with Bastian saying that a number of its 50-seat Bombardier CRJ200 regional jets are temporarily parked due to pilot staffing issues.
“Pilots are a constraint in the system right now, and I think they’ll be a constraint for some time,” Bastian said. Executives at other airlines have said they do not expect the shortage to ease until at least the middle of 2023.
Delta continues to take delivery of new Airbus jets this year, including A220s, A321neos, A330-900s, and A350-900s, as part of its fleet renewal program. A potential order for the Boeing 737 Max order, which Bastian has hinted at in the past, remains up in the air. “We’ve been trying to get a deal done with Boeing on that,” Bastian said, adding that “hopefully we’ll be able to figure something out.”
Despite the operational headwinds, Bastian is downright bullish on the future of air travel. He is not concerned about the potential impact of a recession in the U.S. — or one in Europe — on demand. He added that a benefit from a potential recession would be lower fuel prices.
“I think the human spirit wants to travel,” Bastian said. “It’s tough to keep it bottled up … I think [demand is] going to settle out at a higher level of activity than we were in 2019.”
