# Delta sees return to profit as travel demand hits ‘historic’ levels
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-04-13
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Delta Air Lines Inc Forecasts Returning to Profit Amid
Meta Description: Delta Air Lines Inc posts a smaller-than-expected quarterly loss, forecasts return to profit on booming travel demand, higher fares, and offsetting fuel costs.
URL: https://financedigest.com/delta-sees-return-to-profit-as-travel-demand-hits-historic-levelshtml

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By Rajesh Kumar Singh

CHICAGO (Reuters) -Delta Air Lines Inc on Wednesday posted a smaller-than-expected quarterly loss and forecast returning to profit in the current quarter on the back of a booming travel demand, sending its shares higher.

The company said robust consumer demand not only helped it post a “solid” profit in the month of March, but is also allowing it to offset soaring fuel costs with higher fares.

Since it is “successfully recapturing” higher fuel prices, Delta said it expects to generate an adjusted operating margin in the range of 12% to 14% and [“strong” free cash flow in the June quarter](https://www.financedigest.com/italys-mps-sees-safe-habour-ahead-after-strong-quarter.html "Italy’s MPS sees ‘safe habour’ ahead after strong quarter"). The [company estimates revenue](https://www.financedigest.com/healthcare-information-systems-market-2021-global-leading-companies-analysis-revenue-trends-and-forecasts-2027.html "Healthcare Information Systems Market 2021 Global Leading Companies Analysis, Revenue, Trends and Forecasts 2027") in the current quarter would improve by about 14-18 points from a quarter ago.

The [demand environment that we have today is at a historic high,” Chief Executive Officer](https://www.financedigest.com/token-inc-launches-london-office-to-answer-demand-from-european-banks.html "Token, Inc. Launches London Office to Answer Demand from European Banks") Ed Bastian told Reuters in an interview. The last five [weeks have been the strongest period of bookings that Delta has ever seen](https://www.financedigest.com/hungary-cenbank-seen-hiking-100-bps-to-11-75-next-week-as-inflation-surges.html "Hungary cenbank seen hiking 100 bps to 11.75% next week as inflation surges") in our history.

Delta’s [shares were up 4.5% at $40.38 in morning trade](https://www.financedigest.com/social-trading-is-the-new-way-that-gen-z-are-getting-their-share-of-the-pie.html "Social Trading is The New Way That Gen Z Are Getting Their Share of The Pie").

After a speed bump caused by the Omicron coronavirus variant, travel demand has roared back, with some airlines [reporting the highest ticket sales](https://www.financedigest.com/ikea-reports-record-sales-as-price-hikes-offset-weakening-consumer-confidence.html "IKEA reports record sales as price hikes offset weakening consumer confidence") in their history. U.S. [passenger traffic has been averaging about 89% of the pre-pandemic levels](https://www.financedigest.com/fraport-sees-2023-passenger-traffic-at-80-90-of-pre-pandemic-levels.html "Fraport sees 2023 passenger traffic at 80-90% of pre-pandemic levels") since mid-February, according to Transportation Security Administration (TSA) data.

[SOARING COSTS](https://www.financedigest.com/amazon-other-retailers-revamp-free-shipping-as-costs-soar.html "Amazon, other retailers revamp ‘free’ shipping as costs soar"), HIGHER FARES

A run-up in fuel [costs and rising](https://www.financedigest.com/suedzucker-quarterly-profits-surge-73-5-despite-cost-rise.html "Suedzucker quarterly profits surge 73.5% despite cost rise") wages, however, are also driving up industry’s operating expenses. Jet fuel [prices in North America have gone up by more than 30%](https://www.financedigest.com/renault-revenues-rise-30-in-q1-on-higher-sales-and-prices.html "Renault revenues rise 30% in Q1 on higher sales and prices") in the past month, since Western countries slapped sanctions on Russian exports.

Delta’s fuel bill in the March quarter was 33% [higher](https://www.financedigest.com/delivery-hero-sees-higher-gross-merchandise-value-in-third-quarter.html "Delivery Hero sees higher gross merchandise value in third quarter") than a quarter ago and is projected to increase by 15% quarter-on-quarter in the three months to end-June.

Fuel is the [airline industry’s](https://www.financedigest.com/airline-body-iata-sees-industry-recovery-now-in-2023.html "Airline body IATA sees industry recovery now in 2023") second-biggest expense after labor, but major U.S. carriers do not hedge against volatile [oil prices](https://www.financedigest.com/oil-prices-steady-after-u-s-stockpile-swell.html "Oil prices steady after U.S. stockpile swell") like most European airlines. Instead, they typically look to offset fuel [costs with higher](https://www.financedigest.com/uk-pub-operator-wetherspoons-loss-narrows-despite-higher-costs.html "UK pub operator Wetherspoon’s loss narrows despite higher costs") fares.

Airline fares were up about 24% year-on-year in March, among the biggest contributors to a jump in U.S. [consumer prices](https://www.financedigest.com/german-eu-harmonised-consumer-prices-up-8-8-y-y-in-august.html "German EU-harmonised consumer prices up 8.8% y/y in August"). Delta’s average fares are up about 33% from a year ago, [according to data](https://www.financedigest.com/most-sales-and-marketing-teams-struggle-to-activate-data-in-their-organisation-according-to-new-international-study.html "Most Sales and Marketing teams struggle to activate data in their organisation, according to new international study") from Cowen.

Some analysts are [concerned that rising fares and higher inflation](https://www.financedigest.com/shares-rise-but-concern-mounts-over-inflation-flare-up.html "Shares rise, but concern mounts over inflation flare-up") could dent travel spending. Bastian said while the industry needs to watch the overall health of consumers, travel [demand is expected](https://www.financedigest.com/merck-kgaa-expects-2023-profit-to-slip-as-covid-demand-wanes.html "Merck KGaA expects 2023 profit to slip as COVID demand wanes") to remain “very healthy and strong” through the summer.

Right now, I’m optimistic that our [consumers will be in a very good place to continue to travel,”](https://www.financedigest.com/european-airlines-see-travel-withstanding-consumer-squeeze-for-now.html "European airlines see travel withstanding consumer squeeze for now") Bastian said.

The Atlanta-based [company’s non-fuel costs](https://www.financedigest.com/companies-cost-inflation-is-slowing-but-shoppers-may-wait-for-lower-prices.html "Companies’ cost inflation is slowing but shoppers may wait for lower prices") in the current quarter is forecast to be 17% higher than in the corresponding period of 2019. Its capacity is estimated to inch up to about 84% of the 2019 level.

Adjusted [loss for the first quarter came in at $1.23 per share](https://www.financedigest.com/what-is-inheritance-tax-share-loss-relief.html "What is inheritance tax share loss relief?"), compared with a loss of $1.27 per share estimated by analysts in a Refinitiv survey.

(Reporting by Rajesh Kumar Singh; Editing by Bernard Orr and Nick Zieminski)


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