Delta Air Lines on Wednesday said it will halt flight growth for the remainder of the year despite surging demand, to avoid mass cancellations that plagued the carrier this summer.
Travelers have shaken off fears of COVID-19 and are taking to the skies at levels not seen since 2019, before the pandemic. But Delta now plans to hold its flight capacity at June levels for the rest of the year to improve its operational reliability as the airline has struggled to staff its full flight schedule.
“We had a pretty rough six weeks from mid-May through the end of June,” said Delta CEO Ed Bastian. “It caused us to pull down the operations a bit.”
Still, the combination of expensive air fares and tight capacity limits translated into profitability for the airline — in spite of high fuel costs and operational challenges.
Delta on Wednesday reported $735 million in net income for the second quarter, up from $652 million a year ago.
Domestic flight prices have increased 47% since January, according to an Adobe Analytics report last month. The Consumer Price Index released Wednesday indicated air fares rose sharply in recent months before declining slightly in June.
Bastian said he’s not seeing signs of an economic slowdown.
“We’re closely monitoring consumer behavior and have yet to see any meaningful pullback in demand,” he said.
Bellwether
Delta’s decision not to grow its flight schedule may be prudent given staffing challenges and the cloudy global economic outlook, but for travelers it could mean fuller planes, higher fares and fewer flights despite robust demand.
Airlines like Delta are bellwethers for not only the travel industry, but general business activity.
Delta President Glen Hauenstein believes corporate travel will rise this fall, which industry observers are also closely watching to monitor the state of the economy. Some leisure travelers who were unable to afford the high fares over the summer may also decide to travel in the fall instead, Hauenstein said.
Credit: JOHN SPINK / AJC
Credit: JOHN SPINK / AJC
“The demand is very strong,” Bastian said. “It’s just our ability to make sure that we deliver a high-quality operation.”
The airline has managed to improve its on-time performance this month, he said.
“The reality is that we’ve adjusted our supply and our schedules to accommodate the staff we have,” Bastian said. Later, “we’ll make a decision whether to grow the schedule in the future.”
The airline has only 85% of its flight capacity restored this year compared with 2019 levels, 5 percentage points lower than planned earlier this year. Bastian expects the airline may restore its flight capacity back to 2019 levels by summer 2023, depending on demand.
Pulling back on growth plans for now means Delta faces higher unit costs. While the company has 95% of the employees it needs to fully restore capacity, thousands of new hires are still in training or learning on the job.
As a result, expenses are higher for overtime and premium pay, expected to total $700 million this year, 50% higher than in 2019, according to Delta Chief Financial Officer Dan Janki. The pilots union at Delta has raised concerns about working record overtime and pushed the company to avoid overscheduling.
Delta has restored flights more slowly than the overall airline industry, which has more than 90% of its capacity restored.
Bastian said Delta has also had to reduce some flights due to capacity limits at London Heathrow amid staffing shortages at the British hub.
With the recent wave of coronavirus infections from the omicron BA.5 subvariant, Delta has also had an increase in unscheduled absences.
“We’ve embedded those assumptions now in our staffing model, assuming it’s going to continue for some period of time,” Bastian said.
He said the increased flight cancellations, use of overtime and lower revenue reduced the company’s operating margin by about 1-2 percentage points in the second quarter ended June 30.
Credit: Miguel Martinez
Credit: Miguel Martinez
The airline reported $13.82 billion in operating revenue, up from $7.13 billion in the second quarter of last year. But its operating expense also climbed significantly, to $12.31 billion in the quarter, up from $6.31 billion a year ago. That’s in part from a hiring spree to staff more flights and from high costs such as fuel.
Bastian still expects Delta to have “meaningful full year profitability” this year.
The airline’s domestic passenger revenue was 3% higher in the second quarter than 2019 levels, while international passenger revenue was 81% recovered. Business travel is also increasing, with domestic corporate sales about 80% recovered and international corporate sales 65% recovered.
Looking forward, Delta’s flight capacity in the third quarter is expected to remain 15-17% lower than 2019 levels, but total revenue is expected to be 1-5% higher.
For the long term, Delta is in talks with aircraft manufacturers for more large narrow-body planes as it has retired older aircraft.
“That’s something we’re always talking to Airbus and Boeing about,” Bastian said.
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