Strong 2Q at Delta, but soaring fuel costs dim 2018 outlook
DALLAS (AP) – Delta Air Lines executives expressed confidence Thursday that they can raise prices high enough to cover a fuel bill that is likely to be $2 billion more this year than last year.
Airline officials said that strong travel demand and higher average fares fully covered a run-up in fuel prices late last year, and the same trends are helping offset a second spike in fuel prices that occurred in late spring.
The trend is likely to continue. Delta predicted that it will pay 40 percent more for fuel in the July-through-September quarter than it paid a year earlier, nearly identical to the increase Delta paid in the April-through-June quarter. Jet fuel is Delta’s second-biggest expense after labor.
FILE- In this Jan. 8, 2018, file photo, a Delta Air Lines Connection regional jet operated by GoJet Airlines takes off from Logan International Airport in Boston. Delta Air Lines reports earns on Thursday, July 12. (AP Photo/Charles Krupa, File)
Delta Air Lines Inc. shares rose 89 cents to close at $50.73 but were still down 9.4 percent so far this year, compared with a 4.7 percent gain for the Standard & Poor’s 500 index.
“One of the things that has been weighing on the stock, as we all know, is the growth in fuel prices in the short term,” Delta CEO Ed Bastian said on a call with analysts and reporters. “We expect to be able to cover most if not all of it this year, by the end of the year.”
Bastian made the comment as Delta reported a $1 billion profit in the second quarter, down 14 percent from a year earlier.
Delta’s profit topped most analysts’ expectations – adjusted earnings were $1.77 per share, a nickel better than the forecast of analysts surveyed by Zacks Investment Research. Revenue rose 10 percent, to $11.78 billion.
But the Atlanta-based airline slashed its outlook for the full year, which it blamed on fuel costs. Delta predicted that adjusted 2018 earnings would be between $5.35 and $5.70 per share, down from an earlier forecast of $6.35 to $6.70 per share.
Delta passengers are paying more for travel this year. While Delta doesn’t disclose the average fare, its revenue for every mile that passengers flew – a stand-in for prices – rose 4.6 percent in the second quarter.
The airline slightly trimmed its growth plans – the numbers of flights and seats – for this fall in response to rising fuel prices, but analysts were hoping for a more dramatic reduction to drive up fares faster.
Delta is also making more money from extra fees on things like checking a bag, picking a better seat, or changing a reservation. It is getting a tidy boost from hauling cargo, from its SkyMiles frequent-flyer program and from other businesses including a refinery.
David Koenig can be reached at http://twitter.com/airlinewriter
FILE- In this March 2, 2018, file photo, Delta Air Lines planes are grounded in New York. Delta Air Lines reports earns on Thursday, July 12. (AP Photo/Mark Lennihan, File)
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