Delta Air Lines Delivers a Profit, but Faces Fuel-Cost Pressure

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Travel demand soared in the summer before the outbreak of the more contagious Covid-19 variant threatened airlines’ recovery

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Demand for travel picked up again this summer, before the proliferation of the Delta version threatened to put an abrupt halt to the airline’s recovery. Chief Executive Officer Ed Bastian said in an interview that while the “variants” – as Delta Air Lines referred to them – caused slowing bookings and declining revenue, the effect was minor and temporary.

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“We weren’t derailed by the edition,” he said.

While airlines downgraded their outlook and cut flying as the variant caused people to plan trips and cancel existing trips, carriers have recently said that demand has stabilized or is coming back. has started. American Airlines Group Inc.

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Tuesday said its third-quarter revenue is likely to be 25% below 2019 levels that the company had previously estimated, “on the better end”.

Mr Bastian said bookings have been increasing over the past five weeks and corporate travel bookings have reached a fresh pandemic. Domestic business volume has recovered close to 50% till last week, he said, though not as strong as the airline was expecting before delaying the return of companies to offices.

In the fourth quarter, Delta said it expects its revenue to grow more than 70% from 2019, up from the 66% recovery in the third quarter. He said the demand for holiday travel appears strong and the resumption of international travel will boost demand in the coming months. The US has said it plans to lift travel restrictions that have barred people from several countries from entering the US, and instead wants non-Americans arriving from overseas to show proof of vaccination.

Still, with rising fuel prices and other costs, airlines will face new challenges to keep a lid on their costs, analysts say. Delta said it expects higher fuel prices to reduce its profits in the fourth quarter. The airline expects jet-fuel prices to be between $2.25 and $2.40 a gallon this quarter, up from $1.94 in the third quarter.

In the past, airlines have been able to pass on higher fuel costs to customers by increasing fares, but there is usually a lag and it is not clear whether customers will be more price sensitive when returning to travel.

“In the short term, this is our biggest inflationary pressure,” Mr Bastian said.

Airlines have had some operational disruptions as travel resumed and rushed to hire more workers. While Delta delayed and canceled fewer flights than major rivals over the summer, its customers often had to wait hours for customer service over the phone, which the airline is working to fix.

Mr Bastian said Delta had made progress, but it would take two to three months for the issue to be resolved. Delta has hired more than 8,000 employees during the year so far and the airline is not having trouble finding new employees, he said.

While other major carriers have announced they will require employees to be vaccinated against COVID-19 in order to comply with new rules for federal contractors — including airlines — Delta has shut down. Mr Bastian said Delta will comply with federal requirements, but believes its policies are working to persuade people to take the shot.

Delta has made non-vaccinated employees undergo routine testing, and next month it will start charging them an additional $200 per month for health insurance. Since that plan was announced, Delta’s vaccination rate has increased from about 75% of employees to 90%, Bastian said. The airline expects 95% of its employees to be vaccinated by November. Those who would be exempted for religious or medical reasons are likely to have very few holdouts, he said.

As a result, Mr Bastian said he is not concerned about any disruption to the holiday season.

Unions Representing Pilots at American and Southwest Airlines Co.

The U.S. has said there could be problems during the busy holiday season if pilots who object to vaccination are terminated, leading to staff shortages.

“We are going well above the threshold for any disruptive activities,” Mr Bastian said.

According to FactSet, Delta reported an adjusted profit of 30 cents per share excluding government aid, up from the 15 cents per share profit analysts were expecting.

Alison Cider at [email protected]

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