Delta Air Lines Inc. said Thursday that persistent appetite for travel helped it recoup higher costs while still filling seats.
Delta Air Lines stock surges 5% in premarket trading.
Delta on Thursday reported a profit of $695 million for the three months ended Sept. 30 -- about 54% lower than the same period in 2019, before the Covid-19 pandemic upended the industry.
Airline executives say that the resurgent travel demand over the summer didn't immediately cool off, as it often does in the fall, even as inflation and fears of a recession affected consumer spending in other areas. This year, strong sales continued through September, airline executives said. At the same time, delayed plane deliveries and staffing shortfalls have curtailed some carriers' growth. Passengers are paying more as airlines have been able to raise fares enough to cover higher costs of fuel and labor without derailing demand.
Flights are routinely 90% full despite the higher price tag, as consumers give priority to spending on travel and experiences over some goods, Delta Chief Executive Ed Bastian said in an interview.
Delta's operating revenue of $12.8 billion, excluding third-party sales from the oil refinery it owns, surpassed 2019 levels by 3%, even though Delta still isn't flying as much as it did in 2019.
Hurricane Ian, which barreled into Florida at the end of September, was another challenge. Delta said the storm caused a $35 million hit to revenue as flights were canceled and bookings in the affected areas slowed, reducing adjusted earnings by 3 cents a share.
Investors have been nervous about whether an economic downturn would cut the travel rebound short and make it difficult for airlines to cope with higher costs.
Delta shares have fallen nearly 8% in the past month, and shares of rival carriers have tumbled as well. Adjusted for unrealized losses on investments and other items, Delta reported a profit of $1.51 a share, just shy of the $1.53 a share that analysts expected, according to FactSet.
Mr. Bastian said the fears are unwarranted. "As we look into the fourth quarter, there's nothing that gives me pause to think that this momentum isn't going to continue," he said, adding that people are continuing to book trips for the winter holidays and that U.S. travelers are still heading to Europe despite travel disruptions there over the summer.
Delta said Thursday that corporate sales picked up after Labor Day, climbing to 80% of 2019 levels by the end of the quarter. Mr. Bastian said the number of corporate travelers have lagged behind that somewhat, but that newer phenomena such as hybrid work models and blending of business and leisure trips have helped.
Delta said Thursday it expects revenue in the fourth quarter of the year to be up 5% to 9% from 2019 levels, with operating margins of 9% to 11%.
American Airlines Group Inc. this week projected third-quarter revenue will come in higher than it had previously expected. And United Airlines Holdings Inc. this week outlined an expansion of trans-Atlantic travel in anticipation of another booming summer season next year.
Patrick Quayle, United's senior vice president of global network planning and alliances, said the carrier had "historic levels of demand" for travel to Europe, about 20% more than the summer of 2019. United's trans-Atlantic schedule will likely be about 10% larger next summer compared with the summer of 2022, and 30% larger than the summer of 2019.
It is a stark turnaround from a year ago, when the Covid-19 pandemic still weighed heavily on travelers' minds, and upticks in case counts or new variants threatened to throw a travel rebound off track.
The bigger struggles for airlines lately have been rising costs that have eaten into their margins and the growing pains that plagued their efforts to ramp up quickly last summer.
Mr. Quayle said United is working with airports in Europe to make sure they can handle another influx of passengers, after staffing shortages contributed to chaotic experiences for travelers this past summer. "This is a schedule we believe we can operate," he said.
Hoping to limit delays and cancellations, Delta throttled back flying over the summer after its operation got off to a rocky start in May and June. That effort helped get things back on track but resulted in higher costs per seat flown a mile, Mr. Bastian said. Delta's nonfuel unit costs rose 22.5% in the quarter compared with the same period in 2019, and its fuel expense rose 45%.
Delta still plans to fly less than it did in 2019 for the remainder of this year, but plans to gradually restore its full network by next summer, a process that Mr. Bastian said would help ease its own costs and help bring down fares.
He said: "Bringing more supply will help us reach more affordable price points for some of our consumers."
