Shares of Delta Air Lines were trading in a volatile manner on Wednesday after the company reported a worse-than-expected profit for the second quarter. Shares initially slipped before racing higher to finish the day nearly in positive territory.
How Did Delta in Q2?
The airline company managed to record quarterly profit and its representatives feel optimistic for third-quarter earnings due to high travel demands despite the inflation and gas prices.
Delta’s CEO Ed Bastian told CNBC’s “Squawk Box” that the company endured through “rough six weeks” but its decision to cut the number of flights in order to avoid delays and cancellations has significantly improved its July results.
“We pushed too hard. We scaled back a bit … and in July we’re running a great operation.” Bastian said.
One of the unorthodox decisions to try and avoid flight disruptions was allowing the July Fourth holiday travelers to change their flights without paying a difference in fare.
Delta’s adjusted earnings per share were reported at $1.44 versus $1.73 expected, while its revenue came in at $13.82 billion, versus the $13.57 billion expected. Delta’s costs for each seat per mile, excluding fuel, were up 22% from 2019 for April, May, and June. Its fuel expense, however, costs 41% more than three years ago.
Delta is the first U.S. airline company to report second-quarter earnings. American Airlines and United Airlines are due to announce next week.
Strong Travel Season Underway
Travel season, holidays, festivals, and a surge in domestic corporate travels are the main reasons behind the highest travel demand in summer for the last three years. The business-related travels are up 25 percentage points compared to the first quarter of the year.
According to Transportation Security Administration data, U.S. passenger traffic for this summer is up 18% compared to the same period last year, averaging about 89% of traffic compared to pre-pandemic years.
Ed Bastian also took some time to talk about other factors that affected their worse-than-expected second-quarter results. Staffing shortages, air traffic control issues, and weather are additional factors that forced Delta to cancel 3.5% of their flights last month.
The shortage of staff comes in the aftermath of letting go of thousands of pilots and staff in 2020, during the worst months of the Covid-19 pandemic. Moreover, a lot of the most experienced staff have been convinced to take buyouts or early retirement packages earlier than expected, to try and cut costs during the pandemic.
“We had close to 20,000 people retire a year ago, so the top end … many of our most experienced employees have chosen to retire, and that’s opened up opportunities for younger people,” Bastian said.
The airline company did manage to hire 18,000 employees since the beginning of 2021 bringing it to 95% of its 2019 staffing. A lot of the new employees are inexperienced and are going through training, plus its premium pay and overtime for staff will cost Delta $700 million for the whole year, 50% higher than in 2019.
Talks With Airbus
European planemaker Airbus has reportedly entered into negotiations with Delta regarding the increase in the number of already ordered A220 small jetliners for the U.S. carrier, as reported by Reuters.
The deal is expected to be signed at next week’s Farnborough Airshow, along with the agreement for at least 100 Boeing 737 MAX airliners. The deal for 737 MAX airliners has also been reported first by Reuters back in March.
According to Airbus data dating back to the last week of June, the U.S. airline ordered 95 Canadian-designed A220s, 56 of which have taken delivery.
Summary
Delta reported strong results for the second quarter despite canceled flights and surging costs. The company is also benefiting from the robust travel season and is in talks with Airbus to increase the number of ordered jets.
