Delta Airlines (DAL) Warns of Rising Fuel Costs

Last Updated: Wednesday, October 13, 2021 10:06 AM | Nick Dey

Delta Airlines (DAL) is down 1.63% after the company issued weak earnings guidance for the fourth quarter.

Delta's earnings and revenue were better than expected for the third quarter.

Fuel Costs

Delta Airlines was the first major airline to reclaim profitability from the pandemic, excluding government support, according to the company’s CEO Ed Bastion in an interview on CNBC.

However, despite this quarter’s return to unassisted profitability, DAL doesn’t expect the profit to be sustained in the next quarter. In the company's earnings release, Bastion said: “while demand continues to improve, the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter.”

Delta said fuel costs rose 5% from the prior quarter on an adjusted basis. An 11% increase in capacity was offset by a lower cost per gallon, which fell 8% to $1.94 per gallon from the prior quarter.

Next Quarter

Looking forward to the next quarter, while Delta expects rising fuel prices to challenge its profitability, the company also expects that “with robust holiday demand and an expected improvement in corporate and international demand”, the December quarter’s revenues will rise to somewhere in the low 70s of 2019 revenue in percentage terms. Delta expects to have about 80% of it's pre-pandemic flight capacity restored.

On Oct. 12, the TSA checkpoint travel numbers through US airports had recovered about 73.3% as just under 1.7 million passengers passed through TSA checkpoints compared to 2.3 million on the same day in 2019. This is in line with the 72% restored domestic passenger revenue the company reported for the September quarter.

International Demand

International passenger revenue has recovered just 42% compared to the same period in 2019, meaning sustained profitability for Delta relies heavily on the return of international travel as there is a lot more potential to scale up internationally.

Vaccination Rate

Delta said that as of Oct. 12, roughly 90% of it's employees are vaccinated against coronavirus.

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