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Delta Q2 earnings miss expectations as airlines face 'massive surge' in travel

·3-min read

Delta Air Lines (DAL) reported second-quarter results Wednesday that came in lower than expected as hot demand for summer travel failed to offset higher costs.

Here's how Delta performed in Q2 compared to consensus estimates compiled by Bloomberg:

  • Adjusted net income: $1.4 billion vs. $1.6 billion expected

  • Adjusted earnings per share: $1.44 vs. $1.64 expected

  • Revenue: $12.31 billion vs. $12.33 billion expected

Delta shares were down as much as 6% in early trade on Wednesday amid a broad market sell-off following June's hotter-than-expected inflation data.

According to Delta CEO Ed Bastian, the airline is seeing a "massive surge in air travel this past quarter" that "continues to grow."

"We delivered a meaningful profit for the quarter," Bastian told Yahoo Finance. "An operating profit of $1.4 billion, 12% operating margin — that’s only about 5 points off of the margin we had in the June quarter of 2019 despite the fact that fuel prices are almost twice what they were at that point."

Delta operations returned to 82% capacity (vs. 84% forecasted) during the second quarter as adjusted operating revenue rebounded 99% compared to pre-pandemic levels.

After flight cancellations and delays in June created havoc in airports and led Delta to offer free rebooking over the July Fourth weekend, Bastian stated that "the reliability is back," with flights in July seeing a 99.2% completion rate so far.

The price of reliability

Delta Air Lines has distinguished itself as the only major airline that has been profitable over the last 12 months. Looking ahead, Delta forecasted “meaningful full-year profitability” for the rest of 2022.

But the air carrier hasn't been immune to rising energy prices despite maintaining its own refinery.

Delta reported fuel costs reached $3.82 per gallon during the second quarter. This comes after American Airlines (AAL) revised its guidance for fuel expenses upwards from a range of $3.92 to $3.97 per gallon to $4.00 to $4.05 in June.

But outsized fuel-related expenses, which have largely been passed on to travelers, make up just one part of overall higher costs putting pressure on margins. Delta Air Lines reported that non-fuel unit costs were 22% higher than in June of 2019.

The airline is currently in contract negotiations over compensation for pilots, who are in high demand as airline operators have struggled to keep pace with the "revenge travel" boom. Last month, pilots across the industry picketed over compensation and conditions as the aviation industry hit a series of snags.

"Our pilots at Delta are the best paid in the industry and they will continue to be," Bastian said. “This is not about a wage fight, this is about ensuring that our pilots continue to be well compensated for the great job they do."

FILE - Delta Air Lines passenger jets rest on the tarmac, July 21, 2021, at Boston Logan International Airport, in Boston. The Biden administration says it will spend nearly $1 billion to upgrade airports around the country. The Federal Aviation Administration said Thursday that the money will go to 85 different airports. (AP Photo/Steven Senne, File)
Delta Air Lines passenger jets rest on the tarmac, July 21, 2021, at Boston Logan International Airport, in Boston. (AP Photo/Steven Senne, File)

Will big business push through recession?

So far, domestic and leisure travel have led the recovery, though international and business travel are accelerating, according to Delta's report.

"We’re continuing to see strong demand as we look into the fall as well," Bastian said “Consumers are pulling back on goods, they are pulling back in certain categories, but [air travel] is not a category they’re pulling back on.”

According to data from Adobe Analytics, airfare has seen the second-highest change in price over the past 12 months after gasoline.

"If we do see some evidence later in the year or next year in demand we’ll take action, and we’ve been most conservative about the capacity we've put out there," the Delta CEO added.

Bradley Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.

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