Delta Air Lines reported its highest-ever second-quarter revenue, as a record number of travelers take to the skies.
Yet it saw its quarterly profit decline as airlines across the industry rushed to add more flights to take advantage of the demand — driving increased price competition.
Delta’s net income in the quarter ended June 30 declined 29% to $1.3 billion, compared with $1.8 billion a year ago.
“There was a lot of supply added across the industry,” said Delta CEO Ed Bastian. He said flight capacity is up roughly 8% this summer, while demand is up perhaps 4-5%.
“That’s when you have discounting” at lower fare levels, Bastian said. Prices “have come down, brought on by more supply coming into the market.”
He said Atlanta-based Delta was “impacted a little bit by that.” Airlines lower fares to fill open seats in economy class, which can help drive up total revenue — while lowering profit margins.
The airline’s stock price fell Thursday morning, amid investor concerns about the results and a weaker-than-expected profit forecast for the third quarter.
Delta grew its revenue 7% to $16.7 billion in the second quarter, from $15.6 billion a year ago. Bastian said demand for air travel remains strong, and the airline had its highest-ever summer revenue day this past Sunday.
But the airline’s passenger revenue per available seat mile — a measure of how much each passenger pays to fly — declined 3% year-over-year.
Other airlines have seen more severe impacts. American Airlines in May cut its forecast for second-quarter unit revenue and profit and announced the departure of its chief commercial officer. Southwest Airlines last month cut its forecast for second-quarter unit revenue and faces demands from an activist investor for a change in leadership.
Airlines are also dealing with the effects of higher fuel costs, which were up 12% at Delta. Delta had a 10% increase in overall operating expense to $14.4 billion, from $13.1 billion in the year-ago quarter.
There will be a “rebalance” of supply after the summer peak travel period, Bastian said, when growth in flight capacity will slow as the vacation season ends. Delta is also slowing its hiring, after growing its employee headcount to about 100,000 in an expansion coming out of the COVID-19 pandemic.
Bastian said Delta has benefited from the fact that it gets most of its revenue from premium seats, which include first class, business class, premium economy and Comfort+ fares.
“Value in this industry, for many years, was defined as having the lowest fare in the market. That’s changed — has changed dramatically. The experience economy that we’ve seen has taken hold; that’s driven the high demand set that we are seeing,” Bastian said. “We need to continue to better differentiate.”
Among those efforts to add more upscale offerings, Delta has rolled out premium economy seats, called Premium Select, on international flights, with fare structures more than double fares for coach class seats. It is adding a premium economy section to New York-Los Angeles flights starting in September. Delta is also preparing to detail more plans for premium services later this year.
Another investment is the addition of free inflight Wi-Fi to more aircraft in the Delta fleet over the next 12-18 months.
The airline has seen strong demand for business travel demand, up 10% year-over-year, according to Bastian.
Business travel firm Corporate Traveler said it saw an 8.5% increase in travel booked to Atlanta in the first half of this year compared with last year. The top cities business travelers were coming from were New York, Boston, Dallas, Chicago and Cincinnati, with an increase in international travel as well.
“Business travelers are traveling more than they ever have and traveling differently with all the new hybrid forms of work that facilitate that,” Bastian said.
One exception is business travel to Paris, which is expected to be stymied by the Olympics starting later this month. Delta is a sponsor of Team USA, but it still expects to see business travel slow significantly to and from the city as it is taken over by Olympic crowds.
That is expected to have a $100 million financial impact on Delta. “Outside of this temporary event, summer travel demand to Europe is strong,” said Delta President Glen Hauenstein.
Looking forward, the airline expects to continue with a double-digit operating margin in the third quarter.
Bastian said travel tends to slow down around a presidential election, “but I don’t expect it to be a material shift at all.”
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