Travel demand pushes ticket prices, profits, higher at Delta

DALLAS — Delta Air Lines is benefiting from strong demand for air travel this summer and the grounding of Boeing Max planes at key rivals to post record revenue and a bigger profit.

The airline is aggressively adding flights and seats, but it is finding more than enough passengers to fill them, leading to even more crowded planes during the peak vacation season.

Five of the 10 busiest days in Delta’s history have occurred in the past month, CEO Ed Bastian said in an interview.

“Demand is going to continue to stay strong,” Bastian said. “Our advance bookings are healthy, and it should be a good third quarter.”

Delta said Thursday that second-quarter profit jumped 39% to $1.44 billion. The results beat Wall Street expectations, and the airline raised its forecast of full-year earnings.

Shares of Delta, the nation’s No. 2 airline by revenue, rose 69 cents to close at $60.16.

Delta passengers flew more than 63 billion miles in the April-through-June quarter, a 6.3% increase over the same period last year and roughly double the growth the airline saw in 2017 and 2018.

The Atlanta carrier boosted passenger-carrying capacity by a robust 4.7%, but average occupancy still crept higher, to 88%. At that level, many peak-hour flights are full, and even those during nights and weekends have far fewer empty seats.

The airline is seeing particular strength among its highest-paying customers. Revenue from business-class and other premium perks jumped 10% from last year’s second quarter, twice as fast as revenue from selling tickets in the main cabin.

Delta is also getting a boost because rivals American Airlines and Southwest Airlines — and to a lesser extent, United Airlines — cancelled thousands of flights in the quarter because their Boeing 737 Max planes were grounded after deadly crashes in Indonesia and Ethiopia. Delta does not use the plane.

Bastian estimated that the cancellation of Max flights sliced 1% to 2% off the supply of summer flights in the U.S. — a factor in pushing fares higher.

“It’s not hurting us,” he said, before downplaying the significance of cancelled Max flights to Delta’s earnings.

Boeing has struggled to fix flight-control software implicated in the crashes, and now aims to submit a final package of fixes to the Federal Aviation Administration in September. Bastian said, however, “I think it’s going to take longer than people expect” before the plane flies again.

Delta considered the Max two years ago but ordered planes from Boeing’s European rival, Airbus. President Glen Hauenstein said “it was a close call” after considering cost, engines and other factors, and he praised the Max as a “good product.”

Bastian said Delta is also benefiting slightly from a large number of other cancellations on American Airlines, which is suing its own mechanics and accusing them of conducting an illegal work slowdown.

Delta’s second-quarter profit was $407 million higher than a year ago. Adjusted earnings per share were $2.28, 6 cents better than Wall Street expected, according to a survey of analysts by Zacks Investment Research.

Revenue rose 6% to a quarterly record of $12.54 billion, also beating expectations.

Delta Air Lines Inc. said it now expects 2019 earnings of $6.75 to $7.25 per share, up from an earlier forecast of $6 to $7 per share.

Analysts said Delta left room to raise its forecast again if demand remains strong, especially among premium passengers.

“We see Delta as the best-run U.S. airline, with a market share lead in business travellers that allows it to generate (revenue per seat) above the peer average,” CFRA Research analyst Jim Corridore said in a note to clients.

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