Higher costs and low base prices cut Delta’s profit by 29%

Americans traveled in record numbers this summer, but Delta Air Lines reported a 29% drop in second-quarter profit due to higher costs and industry-wide cuts in entry-level fares.

The airline also forecast lower third-quarter profit than Wall Street expects.

Delta said on Thursday that revenue was $1.31 billion (£1.01 billion) from April to June, down from $1.83 billion (£1.42 billion) a year earlier.

Revenue rose 7% to almost $16.66 billion (£12.93 billion) – a company record for the quarter.

Delta’s revenue rose 7%, a company record for the quarter. (AP Photo/Michael Dwyer, File)

“Demand was really strong,” Chief Executive Ed Bastian said in an interview. “International, business (travel), our premium sector, they all performed the best.”

Delta’s results showed a continued divide between passengers seated at the front of the plane and those in economy. Revenue from premium passengers rose 10% – about $500m (£388m) – but sales in the main cabin were flat from a year earlier.

Wealthier Americans are enjoying strong gains in stock prices and home values, economists say, while middle-class families are more likely to hold back on spending as high inflation over the past three years has squeezed their wages.

Delta, United and other airlines have stepped up their offerings for premium passengers, offering better seats, better food, airport lounges and other amenities.

“Our more affluent customers are making a significant contribution to our growth, which is why we are offering them more and more products,” said Mr. Bastian.

Mr Bastian, however, denied claims that the middle class was cutting back on traveller spending.

He added that it is simply a matter of supply and demand — the airline industry, including low-cost airlines, are adding flights faster than demand grows, leading to lower prices.

“Discounts refer to lower prices,” he said.

Delta plans to ramp up flights more slowly through the end of the year, and Mr. Bastian believes other airlines will do the same, which could give carriers more freedom to set prices.

Delta doesn’t disclose average fares, but passengers paid 2% less per mile in the second quarter and the average flight had several more empty seats than a year earlier.

Delta’s revenue growth was more than offset by higher costs. Expenses rose 10%, with labor, jet fuel, airport fees, aircraft maintenance and even the cost of running an oil refinery all rising sharply.

The results come after the airline laid off an undisclosed number of non-union office workers in the fall of 2023. (AP Photo/Brynn Anderson, File)

Labor spending rose 9% from a year ago. Airlines have hired thousands of new workers as travel has recovered from the coronavirus pandemic, but hiring is now largely limited to replacing workers who leave or retire.

Last fall, Delta laid off an undisclosed number of nonunion office workers, a signal that management believed the company had a surplus of workers.

Atlanta-based Delta said its earnings, excluding one-time items, came to $2.36 (£1.83) per share, a cent less than the average forecast of analysts in a FactSet survey.

The airline said its third-quarter adjusted profit would be between $1.70 and $2 per share, missing analysts’ forecasts of $2.04 (£1.58) per share.

Delta reiterated its previous forecast for full-year profit of $6 to $7 per share.