Americans are traveling in record numbers this summer, but Delta Air Lines saw second-quarter profit fall 29% due to higher costs and industry-wide base fare discounts.
The airline also forecasts a lower profit than Wall Street expected for the third quarter.
Shares fell 8% before the opening bell on Thursday and shares of other carriers also fell.
Delta said Thursday that it earned $1.31 billion from April to June, down from $1.83 billion the previous year.
Revenue increased 7% to nearly $16.66 billion – a company record for the quarter. This comes as no surprise to anyone who has recently been to an airport. The Transportation Security Administration has examined more than 3 million travelers on Sundaya single-day high.
“Demand has been very strong,” CEO Ed Bastian said in an interview. “International, business (travel), our premium sector outperformed.”
Delta’s results showed a continued divide between passengers who sit at the front of the plane and those in economy class. Premium passenger revenue increased 10% – about $500 million – but main cabin sales were flat compared to the previous year.
Richer Americans Are Benefiting due to strong gains in stock prices and the value of their homes, according to economists, while middle-class families are more likely to hold back on spending because high inflation over the past three years has eaten away at their paychecks.
Delta, United and other airlines have stepped up their targeting of premium passengers with better seats, food, airport lounges and other amenities.
“Our most affluent customers are contributing significantly to our growth and that is why we continue to bring more and more products to them,” said Bastian.
But Bastian disputed any notion that middle-class travelers are cutting back on spending. He said it’s simply supply and demand — the airline industry, including low-fare carriers, is adding flights even faster than demand is growing, leading to lower fares. “The discount is on the lowest fare category,” he said.
Delta plans to add flights at a slower pace throughout the rest of the year, and Bastian said he believes other airlines will do so as well, which could give carriers more pricing power. Delta doesn’t disclose average fares, but passengers paid 2% less per mile in the second quarter and there were a few more empty seats on the average flight compared with a year ago.
Delta’s increased revenue was more than offset by higher costs. Expenses increased by 10%, with labor, jet fuel, airport fees, plane maintenance and even the cost of running its oil refinery all rising sharply.
Labor expenses grew 9% compared to last year. The airline hired thousands of new workers as travel began to recover from the coronavirus pandemic, but hiring is now mostly limited to replacing workers who leave or retire. Delta laid off an undisclosed number of non-union employees last fall in a sign that management viewed the company as overstaffed.
Atlanta-based Delta said its profit, excluding one-time items, was $2.36 per share, a penny less than the average forecast among analysts in a FactSet survey.
The airline said its third-quarter adjusted profit will be between $1.70 and $2 per share, below analysts’ forecast of $2.04 per share. Delta repeated its earlier forecast that full-year profit will be $6 to $7 per share.
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Christopher Rugaber in Washington contributed to this report. David Koenig reported from Dallas.
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