Delta Air Lines posts profit thanks to stronger travel demand, but rising fuel prices will squeeze 4Q bottom line

Business

CNBC 13 October, 2021 - 09:05am

Delta Air Lines on Wednesday reported a quarterly profit and higher-than-expected revenue for the third quarter, but warned that more expensive fuel will pressure its bottom line in late 2021 despite improving travel demand.

"At present time, we're expecting a modest loss in the fourth quarter," CEO Ed Bastian said on a quarterly call with analysts on Wednesday.

The company's shares were down more than 5% in afternoon trading Wednesday. American was down 3.4% and United was off more than 4%.

The Atlanta-based airline, however, said it expects revenue to continue to recover during the last three months of the year, to a little bit less than three-quarters of the $11.4 billion it brought in the same quarter in 2019, before the coronavirus pandemic.

Delta's third-quarter profit of $1.2 billion, which was down 19% from 2019, was its second profit since the pandemic but the first one without U.S. aid. Delta and other airlines received billions of dollars in federal assistance to keep them afloat during the crisis. Delta's revenue of $9.15 billion also exceeded analysts' expectations of $8.4 billion.

The carrier said customers were willing to pay for "premium" seats, which the company defines as everything from its extra-legroom seats in coach to its Delta One suites on long-haul flights. Delta said the percentage of customers paying for those types of seats, as opposed to upgrades, was higher than September 2019, but it declined to give more details.

Delta is the first U.S. carrier to report third-quarter results and investors are eager to see how carrier's are faring as Covid cases drop but big corporate travel buyers continue to delay their return to offices. United, American and Southwest release results next week.

Airlines warned in late summer that the delta variant of Covid-19 was weighing on bookings but said they have now stabilized., Bastian, told CNBC's "Squawk Box" on Wednesday that business travel is returning, up to half of 2019 levels from 40% in the third quarter.

The airline said it has hired 8,000 people so far this year and Bastian said on quarterly analyst call that it will continue to add pilots, flight attendants and mechanics in 2022. Delta travelers faced long wait times for customer service over the summer and the carrier vowed to beef up staffing to ease those bottlenecks.

Understaffing has hurt airlines since travel demand has returned faster than expected. Last year airlines urged employees to accept buyouts or leaves of absence and thousands took them up on the offer. Close to 20,000 employees left Delta during the pandemic, Bastian said.

Southwest Airlines this week said staffing shortages contributed to its meltdown over the weekend that forced it to cancel more than 2,200 flights since Saturday.

Here's how it performed compared with average analysts' estimates compiled by Refinitiv:

The industry has been providing earnings comparisons to 2019, before the pandemic hit.

Delta said it expects its costs, before fuel expenses, to rise 6% to 8% in the fourth quarter as it ramps up flying. The carrier said it would fly 80% of its 2019 capacity, up from 71% in the most recent quarter.

It expects fuel prices to rise to $2.25 to $2.40, from the average $1.97 a gallon in the third quarter.

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Delta reports first adjusted profit since before the pandemic, but fuel price rise could pressure profitability; stock falls

TheStreet 13 October, 2021 - 07:52am

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Tomi Kilgore is MarketWatch's deputy investing and corporate news editor and is based in New York. You can follow him on Twitter @TomiKilgore.

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