Airlines are scrambling as 'demand has come roaring back'
New York (CNN Business)Delta Air Lines earned its biggest profit since the start of the pandemic in its latest quarter, but higher fuel costs, labor issues and service problems caused it to earn far less than investors expected.
The company reported Wednesday that it earned $735 million in the second quarter. Analysts surveyed by Refinitiv had expected earnings of $1.1 billion for the company.
Average fuel costs for Delta rose to $3.82 a gallon, up 37% from the first quarter and up 82% from the final quarter of 2021. Delta had previously told investors it expected to pay between $3.20 and $3.35 in the second quarter. It now expects to pay slightly less in the third quarter, with fuel costing between $3.45 and $3.60 a gallon.
But the other big problem was a jump in non-fuel expenses. Some of that was related to the costs of service problems that Delta and other airlines encountered in the quarter. It’s non-fuel costs were up 22% when adjusted for capacity, compared to what it paid in the same quarter of 2019, ahead of the pandemic.
A shortage of staff led to a surge in canceled flights, especially during holiday weekends. That has led to higher labor expenses and other costs. Delta raised base pay for many employees 4% in May. While it said it expects costs to improve later this year, it won’t see those improvements during the rest of this summer travel season.
“In the near-term, as we prioritize restoring reliability, our full year non-fuel unit cost will remain higher than our previous plan,” said said CFO Dan Janki.
The good news for the airline, but bad news for customers, is that unit passenger revenue, a measure of air fares, was up 17% compared to the second quarter of 2019. But the airline is still flying 18% less capacity than it did in that earlier period, so total passenger revenue was slightly lower than three years ago.
Total revenue of $13.8 billion was $250 million more than forecast, and was slightly higher than the same quarter of 2019, helped by record revenue from its American Express co-branded credit card.
Shares of Delta (DAL) fell 2% in premarket trading. Delta is the first US airline to report second-quarter results, so shares of rivals American (AAL), United (UAL) and Southwest (LUV) were also slightly lower on the Delta report.
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