Delta posts $695 million Q3 profit, expects big holiday rush

Delta Air Lines expects travelers will pack planes during the upcoming holidays despite higher fares and growing concerns over inflation and the economy.

Delta posted a profit Thursday of $695 million in the third quarter as higher fares this summer and a lucrative credit-card business more than offset higher fuel prices.

The airline forecast a bigger-than-expected profit in the fourth quarter, with revenue that it expects will top pre-pandemic levels. Delta’s CEO said he sees no indication that anxiety over inflation and the economy will discourage people from traveling over the holidays.

Delta’s shares climbed 4% and other airline stocks rose with them.

“It’s going to be a very strong holiday season — Thanksgiving, Christmas, New Year’s,” CEO Ed Bastian said in an interview. “Consumers are still relatively healthy.”

Delta’s third-quarter numbers support that view. The airline’s operating revenue rose 11% above 2019 levels even with an 18% drop in passenger traffic. That was possible because flights were nearly 90% full and the average passenger paid 23% more per mile than during the same months of 2019. Revenue from premium seats rose sharply.

The Atlanta carrier expects to earn between $1 and $1.25 per share on higher revenue in the fourth quarter, easily above Wall Street’s forecast of 79 cents, according to a FactSet survey.

Bastian said advanced bookings — typically three or four months into the future — and comments from big corporate customers point to “very strong” travel demand through the fourth quarter and into early next year.

“I can’t speak for the broader economy,” he said on a call with analysts and reporters. “I know there is some pretty significant macro shifts going on in spending — out of goods and into services — which we are a beneficiary of … we’re glad to see people back on the road.”

Some analysts are more cautious about airlines withstanding economic turbulence. An outsized share of air travel is being done for leisure by people who are now spending much more for basics like food and housing.

“As consumers spend excess savings and make up for lost travel, our analysis suggests that demand will wane for leisure travel,” said Christopher Raite of Third Bridge. He said that will make it even more important that business travel recovers despite alternatives including Zoom meetings. Delta said business travel is at about 80% of 2019 levels.

Summer got off to a rocky start for U.S. airlines, as 2,400 flights were canceled and one in five flights was delayed over the extended July 4 holiday weekend. Despite threats from Transportation Secretary Pete Buttigieg, airlines didn’t do much better until September, when kids were back in school and the number of vacation travelers subsided.

Delta and other airlines have trimmed schedules and hired more workers to fix an understaffing problem that caused many of the flight cancellations. Bastian said Delta is prepared for the holiday season.

Delta still expects to operate fewer flights than in 2019 but plans to fully restore its network by next summer.

Delta’s $695 million profit is below the $1.5 billion the airline reported in the same quarter of 2019, before the pandemic. Including gains from investments and other non-core functions, the airline reported adjusted profit of $1.51 per share, two cents per share less than FactSet’s Wall Street survey.

Airlines use 2019 as a more reliable comparison for typical business operations because the pandemic had such an outsize effect on travel over the past three years.

Revenue rose to $13.98 billion, which includes $1.13 billion from Delta’s refinery near Philadelphia. The total was up from $12.56 billion in the third quarter of 2019, when the refinery contributed only $6 million.

Delta received a quarterly record $1.4 billion from credit cards issued by American Express. The airline expects to reap $5.5 billion from the cards this year.

On the cost side, the airline spent $3.3 billion on fuel and related taxes, up 48% from the same quarter in 2019. Delta paid an average of $3.53 a gallon — it was $1.96 three years ago.

Spending on labor rose 2% over 2019, to $3.05 billion.

Revenue was trimmed by $35 million in September due to flight cancellations from Hurricane Ian, which made landfall on September 28 and it expects a similar storm-related hit in the fourth quarter.

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