Delta's summer travel looks strong despite a quarterly loss

The Delta Air Lines Inc. DAL -3.02% reported a loss in its first quarter, but it said it expects to turn a profit in the third quarter due to robust summer bookings.

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During the first three months of the year, Delta Airlines reported a net loss of $363 million. A preliminary report by Delta reported a profit of $163 million, or 25 cents a share, after excluding what the airline said were one-time costs associated with a new pilot contract and other items - which was roughly in line with the airline's guidance, but it fell short of the 29 cents analysts had predicted, according to FactSet. 

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Airline officials believe demand will remain steady, and they expect to report adjusted earnings of $2 to $2.25 per share in the second quarter of 2022. Revenue is expected to rise by between 15% and 17% compared with the same period in 2021. 

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Ed Bastian, Delta's Chief Executive Officer, said in an interview that Delta is not noticing any evidence that demand is slowing, but rather that consumers' behavior has been changing in a way that can be challenging for airlines to predict in the future. 

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Delta's customers have been booking trips earlier and earlier over the past few years. As a result, the airline's advance cash bookings increased by 20% during the first quarter of 2019 compared to the same period in 2018, and by 23% compared to the same period of last year. 

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"In an attempt to secure their opportunity to travel, the customer is out buying their tickets in advance," according to Mr. Bastian. "I think a lot of them have vivid memories of a travel season that was very difficult a year ago, so they are very familiar with it."

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Vaccine requirements and travel bans that have been in effect since the Pandemic era have been lifted, resulting in a demand for international travel this summer that is higher than ever before. A number of airlines, including Delta, have eliminated most change fees in the wake of the pandemic. Due to that, Mr. Bastian said, consumers are now able to book reservations earlier with fewer penalties if they need to change their plans. 

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The airline said corporate travel has made some gains despite the fact that it has been a slow return. During the first quarter of 2019, domestic demand from corporate customers was at 85% of 2019 levels, while international sales were at 90% of 2019 levels. 

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There was a lot of trouble for airlines last spring and during certain parts of last summer as they dealt with an increase in travel demand that was faster than expected. Efforts are being made to prevent a repeat of the incident between airlines and the Federal Aviation Administration. 

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Last month, the FAA informed carriers that it would allow them to reduce the number of flights at the area's airports without the requirement that they surrender valuable slots as a result of a shortage of air traffic controllers in New York's crowded airspace. This is meant to ease congestion in the area and avoid potential delays. As a result of the situation, some airlines, including United Airlines Holdings Inc., Delta Air Lines Inc., and American Airlines Group Inc., have announced they will be cutting some flights. 

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Delta's flying plans were reduced by about two percentage points during the second quarter of this year, including the reductions that were made in New York, according to Mr. Bastian. 

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“Our experience has shown us that the situation doesn't improve when we push it too hard,” he said. 

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Generally speaking, after the winter holidays there is a slower time of year for vacation travel, and according to airline executives, business travel has not yet returned to the levels it was before the pandemic. Analysts and investors are paying close attention to airline companies' outlooks for the rest of the year since spring and summer is typically the peak times for airlines to earn money.

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Recently, share prices of airlines have fallen as investors have been concerned that the recovery in travel could be derailed if bank-industry turmoil, inflation, and the spreading of layoffs affect consumers' willingness to pay high airfares for a prolonged period of time. 

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Compared with the previous month, the consumer-price index for airline fares rose 4% in March, according to government data released on Wednesday. 

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Despite the fact that many airline executives have been saying for months that demand for travel is holding up and that there is no sign of a slowdown, carriers have been worried that an economic recession could dampen the appetite for travel.

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When United Airlines lowered its earnings forecast for the first quarter last month, it rattled investors when it cited lower demand than it had anticipated in January and early February as well as higher fuel costs and a potential airline pilot union deal as reasons for the change. The company said at the time that spring demand was expected to be stronger than in previous years.

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A share of American Airlines fell more than 9% on Wednesday after it announced that it expects to report an adjusted profit of between 1 cent and 5 cents a share for the first quarter. This number was higher than the company's previous guidance, which predicted it would break even, but it was below what some analysts had expected. 

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The airline industry is currently facing a rise in fuel prices and a rise in labor costs. It was announced last month that Delta's pilots have ratified a new contract that will provide pay increases of 34% over the period of the contract. According to Delta Airlines, nonfuel unit costs should be higher by 1% to 3% in the second quarter of 2022 than they were in the second quarter of 2022, but I believe they will start to fall in the second half of the year.