Delta Air Lines declares higher profits as air travel rebounds
Delta Air Lines said Friday that it earned $828 million in the fourth quarter and that consumers are still snapping up flights and making purchases with their airline-branded credit cards.
The Atlanta-based airline said momentum has carried over into the new year, as the travel industry continues to recover from the worst of the pandemic.
Delta shares fell in trading Friday, however, after the airline gave a disappointing outlook for firstquarter earnings. CEO Ed Bastian said the forecast included the estimated cost of a new contract for pilots, which is awaiting a ratification vote, while many analysts did not consider that expense in their predictions.
Delta’s report came a day after American Airlines delivered a rosy update on its fourth quarter, saying that rising revenue would push earnings per share to nearly double the amount that Wall Street expected.
Both carriers and other U.S. airlines have been helped by strong demand for travel and a limited number of flights — a combination that has pushed fares higher.
Airlines say that a shortage of pilots, especially at regional feeder airlines, has curtailed their ability to operate more flights. However, Delta expects to be operating at around full pre-pandemic levels by this summer.
Investors are starting to worry that as airlines become convinced that the travel recovery is permanent, they will add flights in a bid to grab a bigger share of the market and wind up driving fares lower. That is good for travelers but bad for airline investors, and it has happened many times in the industry.
However, it is unclear whether consumers will continue to spend freely on travel while facing higher prices for food, housing and other essentials. Even though inflation eased in December for the sixth straight month, it remained a staggering 6.5% compared with a year earlier.
For many people eager to resume traveling, 2022 was a difficult year. Airlines struggled to rebuild from deep job cuts they made early in the pandemic, leading to stretches of widespread flight cancellations in the summer. In December, a winter storm caused more disruptions.
Delta officials said they saw an uptick in bookings when Southwest Airlines canceled thousands of flights late last month, but they don’t expect the gains to last.
Bastian said the industry’s biggest challenge this year is to restore people’s confidence in the travel system.
“We know the public wants to travel an outsized amount,” he said. “We have to do our very best not to disappoint them.”
For now, though, most airline executives remain upbeat, as do analysts who track the industry.
“Demand remains strong, pricing is likely to remain favorable due to industry capacity constraints,” and Delta is boosting revenue from sources other than maincabin customers, Cowen airline analyst Helane Becker said.
Bank of America analyst Andrew Didora said he expects Delta to boost free cash flow generation in 2023, allowing it to pay down debt more effectively than American or United. He said Delta is likely to increase its share of the U.S. air-travel market as it increases flights at its most important airports: Atlanta, Detroit, Minneapolis and Salt Lake City.