Even as American travel hit a record high this summer, Delta Air Lines said Thursday its second-quarter profit fell 29 percent due to rising costs across the industry and cuts to base fares.
The airline also forecast third-quarter profit to be lower than Wall Street expected.
Delta Air Lines Chief Executive Officer Ed Bastian, in a conference call with analysts and reporters, sent a clear message to low-cost airlines that the airline will slow its growth to alleviate a glut of domestic seats.
The stock fell 8% at the start of trading on Thursday, with other airline shares falling similarly. JetBlue, American, United and Southwest all fell between 3% and 7%.
Delta Air Lines said it made a profit of $1.31 billion for the April-June period, down from $1.83 billion in the same period last year.
Revenue rose 7% to nearly $16.66 billion, the company’s highest quarterly record. That’s no surprise to anyone who’s been to an airport recently: The Transportation Security Administration screened more than 3 million travelers on Sunday, a new daily record.
“Demand has been really strong,” Bastian said in an interview. “International, business (travel) and premium have all been strong.”
Delta’s financial results showed a continuing disparity between passengers who sit in the front of the plane and those in economy class: Revenue from premium class passengers increased 10%, or about $500 million, while main cabin sales were flat from a year ago.
Economists say wealthy Americans are benefiting from strong gains in stock prices and home values, while middle-class families are tending to cut back on spending after high inflation over the past three years has eroded their paychecks.
Airlines including Delta Air Lines and United Airlines are increasingly targeting premium passengers with better seats, meals, airport lounges and other amenities.
“Our affluent clients are a big part of our growth, which is why we continue to offer them more and more products,” Bastian said.
But Bastian disputed the idea that middle-class travelers are cutting back on spending. He said it’s simply a matter of demand and supply, and that the airline industry, including budget carriers, is adding flights faster than demand is growing, leading to lower fares. “Discounts are happening in the low-fare area,” he said.
Delta plans to slow the pace of adding flights for the rest of the year. Mr. Bastian said he expects other airlines will do the same, which could give Delta more pricing power. Delta doesn’t break out average fares, but passengers paid 2% less per mile in the second quarter and the number of available seats on the average flight is 20% to 30% higher than in the same period last year.
Delta’s revenue growth was more than offset by rising costs, which rose 10 percent and included sharp increases in labor costs, jet fuel costs, airport fees, aircraft maintenance costs and even the cost of running oil refineries.
Labor costs are up 9% from last year. The airline hired thousands of new employees as travel began to recover from the coronavirus pandemic, but now its hiring is limited to mostly replacing retirees and retirees. Delta laid off several nonunion office workers last fall, a sign that management considered it was overstaffed.
Atlanta-based Delta Air Lines said it earned $2.36 per share, excluding one-time items, missing the average estimate of analysts surveyed by FactSet by 1 cent.
Delta Air Lines said it expects third-quarter adjusted earnings of $1.70 to $2 per share, below analysts’ expectations of $2.04 per share. The airline reiterated its previous forecast of full-year earnings of $6 to $7 per share.
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Christopher Ruger in Washington contributed to this report. David Koenig reported from Dallas.
