Issue No. 871
Back To Black
Delta Unveils Solid Profits for the Spring Quarter
Pushing Back: Inside the Issue
Second quarter earnings season is underway, ushered in with solid performance from Delta. The Atlanta-based giant earned a double-digit operating margin for the spring quarter, a welcome lift from its loss-splattered results during two years of pandemic misery. Delta is not quite making money like it was in 2019. Fuel costs are much higher now, and capacity much lower now, the latter causing low asset utilization and, by extension, inflated non-fuel unit costs. Also weighing on Delta’s results was the severe operational distress plaguing much of the airline industry. The difficulties of restaffing after a pandemic-era contraction is one reason, but Delta and its peers blame air traffic control issues as well.
But make no mistake: the demand and revenue side of Delta’s business is firing on all cylinders. The yearning for air travel is back in a big way, especially among leisure fliers but increasingly among business fliers as well. Delta, keep in mind, has excellent insights on consumer spending trends thanks to its close relationship with American Express. And, from everything it sees, consumers are still eagerly buying airline tickets, inflation and other economic pressures notwithstanding. Incidentally, in its own earnings call J.P. Morgan Chase cited strong consumer spending as well; travel and dining jumped 34 percent year-over-year. The big Wall Street bank would know: It has lucrative credit card contracts with Southwest and United.
Back at Delta, management said bookings continue to build strongly, even into the quieter fall season. In the meantime, it's negotiating a new contract with pilots and contemplating the addition of more narrowbody jets. It’s surely watching developments at Spirit as well. Still no resolution on who — JetBlue or Frontier — will buy it with a key shareholder vote delayed, again, this time to July 27.
What will airlines buy at this week’s Farnborough Air Show? Oddly enough, despite two years of sharply depressed demand, the aircraft market is currently rather tight, especially for Airbus and Boeing narrowbodies. Even widebodies, though, are tough to get these days owing to Boeing’s production woes and supply chain bottlenecks more generally.
As air travel issues ease somewhat in the U.S., Europe’s travails remain at crisis levels. Entering the weekend, SAS pilots were still on strike. Transavia flight attendants caused cancellations and delays. And London Heathrow and Frankfurt airports cut capacity through the rest of the summer. “We are asking our airline partners to stop selling summer tickets to limit the impact on passengers,” Heathrow said. Emirates, for one, isn’t pleased.
Will investors be pleased with second quarter financial results? A parade of airlines will report this week, including Delta’s rivals American and United. Also on deck are several carriers from Mexico, plus Alaska and Finnair.
— Jay Shabat
The Airline Weekly Lounge Podcast
What's travel like in the U.S. now? Busy and, in some cases, like a T.J. Maxx, The Wall Street Journal's new travel columnist Dawn Gilbertson told Edward Russell of her 11 flight, six airline "stress test" of the system over the July Fourth holiday weekend. We also chat with her about her role and her view on covering airlines and the travel industry. Listen to this week’s episode to find out. A full archive of the 'Lounge is here.