Delta results show strong demand but also cost pressure – AFR

Delta Air Lines shares tumbled on Wednesday as rising expenses weighed on quarterly earnings despite continued robust demand that appears resilient amid inflation so far.

The major US carrier reported solid second-quarter operating results and said it was on track for “significant full-year profitability,” a significantly better outlook after the painful pandemic downturn.

But the results fell short of analysts’ expectations, prompting analysts to ask questions about when Delta expects to get costs under control and stabilize operations.

Along with a 41 percent increase in fuel costs compared to the 2019 period, the airline saw labor costs rise, partly due to increased overtime pay as it grapples with an industry-wide labor shortage that will take time to address.

“The issues we’re facing are temporary,” Chief Executive Ed Bastian said, alluding to a six-week stretch in the just-ended quarter that was plagued by flight cancellations and delays.

Bastian said operational performance improved in July after the airline built in more buffer time for crews between flights

Delta has also trimmed its near-term growth plans. It forecasts capacity to decline 15 to 17 percent in the third quarter compared to 2019 levels.

Executives said cost pressures should ease in the second half of the year as Delta postpones its growth plans and focuses on improving operations.

Part of the problem is the onboarding of around 18,000 new employees since the pandemic.

Bastian said the airline has done a good job of recruiting staff, but there is a learning curve with new employees that should ease as staff gain experience.

Quarterly earnings were $735 million on sales of $13.8 billion. That translates to $1.44 per share, down from the $1.64 analysts were expecting.

Delta’s earnings were released just ahead of June’s U.S. CPI report, which showed a 9.1 percent rise over the past 12 years. Inflation will eat away at household disposable income, particularly for the less affluent.

Delta executives insisted they don’t see erosion in ticketing, citing “pent-up demand” after the pandemic.

“We don’t see it,” Delta President Glen Hauenstein said of a possible decline. “From now on we are enjoying very robust editions.”

Shares fell 6.6 percent to $29.02 in late morning trading.