Delta Announces Historic Earnings Report

While many have fears about the state of the current economy and high inflation stifling certain industries, it appears that the airline industry may not be one of them. Atlanta-based Delta Air Lines announced this past week that the summer travel season was incredibly successful for the airline and that it had earned a net income of $695 million. Driving the significant earnings was a high level of demand not only for leisure travel but a resurgence in business travel as well.

Flights to international countries, a casualty of the COVID-19 pandemic, have largely returned and have seen steady gains in passenger numbers. Moreover, airline fares have not been immune from inflation, and have remained high throughout the summer. In spite of higher fares, airlines have not seen a quench in demand. As a whole for the third quarter, Delta reported revenues upwards of $14 billion. While the revenue was a record for the airline, operating costs did move the net income down to below-2019-record levels of around $1.5 billion.

Regardless, the forecast from Delta is incredibly optimistic. The airline hopes to restore service to pre-pandemic levels by next summer, and with income at very high levels, it appears Delta is in a position to do that. Operating costs, particularly those of labor and fuel, continue to strain the airline's bottom line, but with inflation levels slowly minimizing over time, it appears that those costs could go down soon. Staffing has been a major hurdle for many airlines in returning to pre-pandemic level service, and fortunately, Delta CEO Ed Bastian has stated that Delta is very close to necessary staffing needs after going on a hiring boom over the past 36 months to replace those who took buyouts.

As for the rest of the announcements from Delta, the airline expects that by the end of the fourth quarter, capacity should be restored to about 92% of pre-pandemic levels, with the rest being filled by the summer. The airline indicated that they have no reason to believe the positive trends will stop anytime soon, and indeed other airlines appear to be going full throttle on the boom in international travel recently. United Airlines, for example, recently announced a massive slate of new transatlantic routes next year. 

Interestingly, the third quarter also marked the first time since the pandemic that the international market made up a higher share of revenue than the domestic sector for Delta and suggests that travel is truly back. It remains to be seen how Delta's revenue will be impacted if airfare inflation weakens, but it also appears that people have not been slowing down bookings in response to a long period of inflated prices. 

Lastly, it is worth noting that Delta's financial results were actually slightly below expectations. Wall Street Analysts had predicted that earnings per share would increase to $1.53 (around 410%), while the actual value ended up being around $1.51 per share. Revenue was also slightly below expectations, but still very strong. All in all, the results were extremely positive for Delta and provide a clear sense of optimism that both demand and supply are recovering well.