Delta Air Lines’ July meltdown triggered by the CrowdStrike outage took a chunk out of the carrier’s third quarter results, but Delta still managed to post a $1.27 billion profit during a busy summer season.
In the July-September quarter, Delta brought in $15.7 billion in revenue, up 1% from the third quarter last year. Delta’s third quarter net income was up 15% compared with the same period a year ago.
Facing competition from low-cost carriers, its revenue from main cabin tickets was down 5%, while premium ticket revenue was up 4% year over year.
Delta’s operating expense grew faster, increasing 6% to $14.3 billion. Removing the benefits of investment gains and other accounting, the company would have seen a decline in its pretax income.
Delta CEO Ed Bastian said the financial picture has been improving each month.
“Domestic unit revenues were positive in September, and that’s the first month domestic has been positive for a number of months,” he said.
Delta also touted its performance so far this year as a big win for employees. The company has accrued nearly $1 billion toward profit-sharing bonuses to be paid out to employees next February for financial performance in 2024.
“We expect this will be among our top profit-sharing payments in Delta’s history, and more than the rest of the industry combined,” Bastian said during an investor conference call Thursday.
CrowdStrike impact
Delta previously disclosed an estimated financial hit of at least $500 million from the Microsoft outage caused by a faulty software update July 19 from cybersecurity firm CrowdStrike, which triggered a five-day meltdown of Delta’s network.
While other airlines recovered, Delta passengers around the globe were left stranded and frustrated with 7,000 flight cancellations over five days.
The financial impact to Delta included about $380 million in lost revenue due to refunds and compensation paid to customers, and about $170 million in expense from the disruption, including reimbursing the expenses of stranded customers and crew costs. Its fuel expense was $50 million lower due to the flight cancellations.
Delta has sought compensation, with an attorney for Delta exchanging letters threatening legal action with attorneys for CrowdStrike and Microsoft.
“We firmly believe that the damage that CrowdStrike and Microsoft cost us was substantial, and we expect to be fully compensated,” Bastian said. “It’s in the hands of the lawyers.”
During the outage, a key problem Delta faced was that its crew tracking system became overloaded and dysfunctional. Bastian said that crew tracking system will be updated and moved to the cloud on Amazon Web Services by the end of this year, a move planned before the outage.
Fourth quarter optimism
Delta forecasts 2-4% revenue growth for the October-December quarter year over year on a 3-4% increase in flight capacity, with an 11-13% operating margin.
“We expect our fourth quarter to be one of the best, if not the best in our history,” Bastian said, with an expected $1.4 billion in pretax profit.
Bookings for the holidays are strong, Delta President Glen Hauenstein said in a written statement.
Some low-cost carriers including Southwest Airlines, the second-largest carrier in Atlanta, are facing financial challenges and cutting back, reducing competition for airlines like Delta.
Dallas-based Southwest said last month it plans to cut its flights at Hartsfield-Jackson International Airport by a third early next year and reduce the number of pilots and flights attendants based in Atlanta.
Meanwhile, Delta is increasing its focus on premium customers, including opening a Delta One Lounge for its business class passengers at Los Angeles International Airport on Thursday, its second such lounge after one at New York’s John F. Kennedy International Airport opened earlier this year.
Delta is anticipating a 1 percentage point decline in unit revenue because of reduced travel demand around the November election.
Bastian said “the amount of rhetoric” around the elections “causes consumers to pause a little bit in the face of uncertainty, not knowing where the election is going to head.”
“Any consumer industries where your consumers are making large decisions, discretionary decisions. ... On the margin I think people are going to pause and wait and decide how they feel after they find out what the election results are.”
Growth in 2025
Looking ahead to next year, Delta said corporate survey results indicate 85% of companies expect to spend more on travel in 2025.
Delta has been working to regain investment grade ratings from credit rating agencies after losing some of those ratings during the COVID-19 pandemic. Fitch restored its investment grade rating for Delta in July.
As part of the recovery, Delta earlier this month said it plans to finally restore its full flight capacity at Hartsfield-Jackson in summer 2025, five years after COVID-19 forced airlines to slash flights as travel plummeted.
“Next year will be the year finally that we’re at, if not ahead of, our pre-COVID levels of flying in Atlanta,” Bastian said. “Some of the flying that we were building out in the coastal hubs were hurting the ability to get Atlanta fully up and running. … It should be another strong year of growth for us here.”
Delta is adding flights from Hartsfield-Jackson to Naples, Italy, and Brussels, as well as more flights to airports across Georgia, amounting to its largest-ever flight schedule from Atlanta.
Hauenstein said the additions in Atlanta as a connecting hub will also allow the airline to increase the efficiency of its network.
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