Delta swings to profit in Q3 as 'dramatic' fuel price surge threatens outlook

Delta Air Lines (DAL) on Wednesday reported third quarter results that beat earnings estimates, with travelers returning to the skies en masse even as new COVID-19 infections soared.

Here are the main results from the Q3 report, compared to consensus estimates compiled by Bloomberg:

• Adjusted pre tax income: $216 million vs $123.6 million estimate

• Adjusted earnings per share: $0.30 vs $0.17 estimate

• GAAP earnings per share: $1.89 vs $0.98 estimate

• Revenue: $8.3 billion vs $8.45 billion estimate

Delta profit surged during Q3 from the comparable year-ago — when it posted a staggering pre-tax loss of nearly $7 billion — marking an important recovery milestone, with mass vaccinations making flyers more comfortable moving around the country.

“But the fact that we're profitable, while still missing a third of our revenue base, I think, is a great statement about the resilience of the business that we've created, and our opportunity to continue to improve it into the new year as demand recovers,” Delta CEO Ed Bastian told Yahoo Finance Live.

Two years ago, Delta reported a $2 billion profit on revenue of $12.6 billion in the third quarter — which at the time was a record for Delta.

Four months later, the pandemic decimated the airline industry. Delta lost $881 million in the second quarter of this year, but a surge in leisure and domestic travel propelled the airline back to profitability during the last quarter.

“I just think about the joy of reconnecting, and that's what we do best. We bring the world together, we connect, and we're the conduit through which that joy occurs,” Bastian said.

Delta’s capacity is running at 71% and passenger revenue has reached 63% of what it had been in 2019. Bastian said the revenue recovery could hit 75% by year's end as Americans travel for the holidays.

But he cautions the rapid increase in jet fuel prices will pressure Delta’s ability to remain profitable in the fourth quarter. “If you look over the course of the year, to date fuel prices are up 60%... So it's escalated dramatically over this last year," he said.

Bastian said Delta may raise ticket prices to cover the increased cost for fuel.

“Consumers are interested in traveling and consumers have a meaningful amount of wealth,” he pointed out. “I think they can cover the higher costs. Pricing is down in general this year so there's some room for us to cover it in higher fuel costs.”

‘Those bookings went up 10x overnight”

The Biden administration plans to use new U.S. travel regulations, starting next month, to allow foreign travelers entry into the United States, from any country, as long as they can prove they have been vaccinated against COVID-19. “Those bookings went up 10x overnight from where they had been,” Bastian said.

Delta’s transatlantic revenue is running at 35% of what it had been in 2019, but Bastian insisted Europeans are ready to come to the US.

“I just think of all the thousands and thousands of notes I've received from families that haven't been able to see grandchildren and loved ones and people on their, unfortunately, their deathbeds. And it's just crisis situations, we all become numb to some level of what COVID has done to us,” Bastian lamented.

The airline is also seeing increased demand among business travelers. “The current week, this past week, we just saw the highest level of domestic business activity and volume that we've seen in 18 months, that recovery rate approaches 50%,” Bastian said, predicting the trend will continue into 2022 as businesses continue to open back up.

Delta said it is prepared for the increased number of travelers having hired 8,000 employees since the start of the year. “So with the volume coming back strong this year, we need to get people in position,” Bastian added, pointing out the airline hasn’t had any problem hiring.

He expects the airline’s recovery to continue in 2022 while targeting 2023 as a “really really good year for us to target, to not just being back but being better than where we were in 2019.”

Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps

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