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June 17, 2024
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When traffic surges and fuel costs decline, the numbers look great.  Delta just reported its highest quarterly revenue and earnings ever.

TD Cowen says in a note: “exceeded our better-than-consensus estimate as strong yields and traffic and lower fuel costs helped results. Adjusted EPS of $2.68 was >11% ahead of our estimate.” The airline is signaling even better times ahead.  CEO Ed Bastian said, “I think the trends that we’ve seen this year are going to continue” and the company notes international travel demand is strong through the summer.  Note Delta raised its full-year outlook in less than a month for the second time.

Delta expects non-fuel costs to decline by 1% to 3% in the third quarter compared to last year.  Fuel costs during the reporting period are over 20% lower than last year. “With this performance, we generated record revenue and profitability in the June quarter. Our people are the best professionals in the industry, and I’m proud to recognize their achievements with $667 million in the first half toward next year’s profit-sharing payment,” said Ed Bastian, Delta’s Chief Executive Officer.

Coincidentally, there is news that Delta Air Lines workers will hold a rally calling on Delta Air Lines to stop its anti-union campaign and allow for a free and fair union election at Minneapolis-Saint Paul International Airport on Friday, July 14 from 3 p.m. to 4 p.m. at the MSP Terminal 1 departure level. There is some labor dissatisfaction.

Delta’s fleet renewal is starting to impact the airline’s fuel burn positively.  The airline has taken 18 new deliveries through July 12.  These aircraft are mostly A321neos that deliver excellent fuel burn.  Delta also took delivery of two A220-300s and two A350-900s, both of which have state-of-the-art engines offering excellent fuel burn.

Since single aisles are by far the biggest component of an airline fleet, the following chart illustrates why Delta is seeing better fuel burn. Although the chart runs through 2022, the trends regarding what we can expect when the data is updated through 2023 are quite clear.  Delta’s traffic is increasingly being flown on new aircraft with significantly better fuel burn.

Using another chart to illustrate how Delta started to update its fleet and how this impacted its fuel burn.  Delta has improved but is lagging behind the industry because its fleet renewal has been less rapid than the competition.

The following chart clarifies that despite Delta’s results being good, the airline’s costs are relatively higher than the industry average. In 2022 fuel costs at Delta were 66% of flight ops costs compared to 64% for the industry.  This is why a decline in fuel costs benefitted Delta.  Delta showed an 11.3% fuel burn disadvantage in 2022.  Faster A2321neo deliveries are a key part of cutting fuel burn per ASM for Delta.

The following chart shows our fleet tracker model with current data.  Delta is managing average fleet age well, balancing new deliveries and retirements.  You don’t want to retire older 767s too fast because you need that lift for trans-Atlantic markets.  Similarly, retiring 757s before new A321s arrive is also not good.  Note the decline in the number of regional jets, which is good because these have the poorest fuel burn per seat.

In summary, Delta reported good numbers because market trends – strong traffic and lower fuel costs – worked in their favor.  Things look good for now.

author avatar
Addison Schonland
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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