Americans are traveling in record numbers this summer, but Delta Air Lines experienced a 29% drop in second-quarter profit due to increased costs and industry-wide discounting of base-level fares. The airline is anticipating lower profits for the third quarter compared to Wall Street expectations, causing shares to plummet by 8% before the opening bell on Thursday, dragging down the shares of other carriers as well.
Delta reported earnings of $1.31 billion from April through June, a decrease from $1.83 billion the previous year. Despite the profit decline, revenue reached nearly $16.66 billion, marking a company record for the quarter. This surge in revenue aligns with the surge in air travel, as evidenced by the Transportation Security Administration screening over 3 million travelers in a single day.
Delta's CEO highlighted the strong demand, particularly in international and premium sectors, which outperformed expectations. Revenue from premium passengers increased by 10%, while sales in the main cabin remained stagnant compared to the previous year.
The divide between premium and economy passengers reflects the broader economic landscape, with wealthier Americans benefiting from stock market gains and rising home values. In contrast, middle-class families are facing challenges due to high inflation, impacting their spending power.
To cater to premium passengers, airlines like Delta and United are enhancing services with better seats, food options, and airport lounges. Despite the perception of middle-class travelers pulling back on spending, Delta's CEO attributed lower fares to industry dynamics, with supply outpacing demand growth.
Delta plans to moderate its flight additions for the remainder of the year, aiming to gain more pricing power. The airline's expenses surged by 10%, driven by increased labor costs, jet fuel prices, airport fees, and maintenance expenses.
Delta's adjusted profit for the third quarter is projected to be between $1.70 and $2 per share, falling below analysts' expectations. The airline reiterated its full-year profit forecast of $6 to $7 per share, emphasizing the need for strategic adjustments in response to evolving market conditions.
