Delta says hiking fares can help it turn a profit as fuel costs surge

The company reported an adjusted net loss of $784 million in the first quarter, which was about $50 million less than Wall Street analysts had expected. Its revenue of $9.3 billion came in about $400 million higher than forecasts. The company said it was profitable in March.

Demand for travel is so strong right now that CEO Ed Bastian told CNBC that March was Delta’s best month ever for bookings — both for flights in March itself and for upcoming travel.

“Demand is phenomenal,” he said. “This is continuing in April. Consumers are ready to go.”

That strong demand has translated into fuller planes and higher fares. Unit revenue, a measure of airfares, should be up more than 10% in the second quarter compared to same period of 2019, Delta anticipates. Its unit revenue in March was above that of March 2019, the first month since the start of the pandemic it achieved a positive comparison.

The first quarter is typically the slowest for US airline profits and revenue. But the second quarter, which includes the spring travel season and the start of summer travel, should be stronger.

A growing number of workers are returning to the office after two years of remote work, and business travel is expected to pick up. So is international travel. Those passengers typically pay higher fares than leisure travelers on domestic flights.

Delta said it expects sales in the second quarter to be between 3% and 7% lower than in the same period of 2019, before the pandemic severely disrupted air travel. Yet Delta is flying just 84% of the capacity it flew back then. Part of the reason is the continued restrictions on international travel — but even domestic capacity is still only back to 90% of where it was before the pandemic.

Delta is doing what it can to increase capacity, Bastian said, including hiring the additional employees it needs to restore more flights to its schedule. But the 15,000 new employees the company has hired since the start of 2021 is still not enough to make up for the loss of staff during the pandemic, when Delta offered early retirement and buyout packages to reduce headcount.

“Maybe by end of year, if we really pushed it, we could get back to 100% [of pre-pandemic capacity],” he told CNBC. But he said that’s not the current desire of management.

“Candidly, right now, for the amount of demand we have, we’re sitting on a pretty good spot [on capacity],” he said.

Still, Delta and the rest of the airline industry face surging fuel prices.

Delta said it expects to pay an average of $3.20 to $3.35 a gallon for jet fuel in the second quarter, up from $2.79 a gallon in the first quarter and only $2.06 a gallon in the first quarter of 2019.

But Delta has a major advantage: Unlike other airlines, it owns its own oil refinery. Higher fuel prices meant the refinery brought in $1.2 billion in revenue in the quarter, up sharply from only $48 million in the first quarter of 2019.

Shares of Delta (DAL) jumped 6% in premarket trading on the news.

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