Delta Airlines keeps a prudent eye on the capacity for the current third quarter, keeping capacity unchanged at 83 to 85 percent of 2019 levels and on par with that in the June quarter. “Decisive action” in Q2 helped Delta restore operational reliability and it wants to keep this up, with July so far showing promising results. Delta focuses on operational stability in Q3.
Delta announced its Q2/HY1 results on July 13, as usually the first US major to do so. The carrier reported a net profit of $735 million compared to $652 million last year. The operating profit was $1.519 billion versus $816 million in the same period of 2021.
However, expenses were significantly higher to $12.3 billion, up from $6.3 billion last year, with fuel costs, unsurprisingly, up to $3.2 billion from $1.5 billion. Adjusted fuel was $3.82 per gallon or up 37 percent or even 94 percent up from 2019. This was slightly offset by a refinery operating income of $269 million and better fuel economy of the fleet. Adjusted non-fuel costs were up ten percent to $7.5 billion and reflect higher capacity.
To compensate for higher costs, Delta has increased air fares. The effect: total revenues increased to $13.8 billion compared to $7.1 billion last year. Of these, $11 billion was from passengers, with Domestic traffic generating the most at $8.3 billion ahead of Transatlantic traffic at $1.7 billion. Transatlantic and Latin American traffic exceeded that of June 2019, while Korea, Japan, and Australia contributed with a ‘meaningful improvement” as Covid restrictions were relaxed or fully lifted. International traffic has now recovered to 81 percent of pre-Covid levels.
Business travel recovering strongly
Delta is also reporting a strong recovery of business travel since Q1, now at some eighty percent of 2019 levels. International business is lagging a bit behind but is still up by thirty percentage points to 65 percent compared to March. The airline is optimistic about a further recovery during the September quarter. Another trend that has continued is the strong demand for premium cabin products, which produce higher revenues than main cabin products in all markets. Also performing strong were revenues from American Express cardholders at $1.4 billion in Q2, up 35 percent from 2019 and on track to reach $5.0 billion for the full year.
Revenues from cargo totaled $272 million versus $251 million last year, with June producing record revenues. Delta’s MRO business also is back to recovery and has now restored to 85 percent of 2019 levels, producing $178 million in revenues in June.
Looking at the six months period, Delta produced a $205 million net loss compared to $-525 million in 2021. This was the result of a $-940 million net loss in Q1. The operating profit was $735 million versus $-582 million, total expenses stood at $22.4 billion versus $11.9 billion. Total revenues in HY1 ended at $23.2 billion (2021: $11.3 billion), of which $17.9 billion was from passengers ($8.1 billion) and $561 million ($466 million). Delta ended June with $13.6 billion in liquidity, including $2.8 billion in undrawn credit facilities. Net debt stood at $19.6 billion after $2.4 billion in debt and finance lease obligations were repaid.
Updated airport procedures
As said, Delta is doing all to restore its operational reliability despite staff shortages and other disruptions. It over-stretched in May and was forced to adjust capacity until August by slashing some 100 daily flights, two percent of capacity.
The airline says it has “updated airport procedures, including earlier domestic boarding and schedule modifications at the company’s largest hubs to help drive more on-time departures and successful connections.” It has also a Reactivated Peach Corps, “providing employees from the corporate offices the opportunity to step away from daily work routines to assist frontline colleagues while supporting Delta’s operation and customer.”
Based on this, Delta thinks it can operate successfully at -15 to -17 percent capacity in the September quarter compared to 2019. Revenues are expected to increase by one to five percent to $12.6 to $13.1 billion, although the costs per available seat mile (CASM) excluding fuel will be up by 22 percent. Fuel costs will have an impact as Delta calculates a price per gallon of $3.45 to 3.60. The airline expects an adjusted operating margin of 11-13 percent.
During HY1, Delta Airlines took delivery of its first three Airbus A320neo, one A220-300, one A330-900, and five “gently used” Boeing 737-900ERs. The new First Class seat offered on the A321neo on domestic routes should strengthen Delta’s competitiveness in the US market.
