Delta, the fuel guzzler

Delta, the fuel guzzler

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A bad quarter for Delta Air Lines (DAL, $29.70) passengers turned into a bad quarter for Delta investors, as the costs of service disruptions, coupled with high fuel prices and rising pay for employees, caused the company to fall short of earnings forecasts.

Delta posted adjusted earnings of $735 million in the second quarter, its biggest profit since the start of the pandemic. But Refintiv analysts expected earnings of $1.1 billion for the airline. The Total revenue of $13.8 billion, beat forecast as it was $250 million more than expected, similar to that the same quarter of 2019. This was further boosted by record revenue from the airline's American Express co-branded credit card. Despite this Delta had to cancel 3.5% of its scheduled flights last month.

U.S. carriers are enjoying the strongest summer travel season in three years as more people resume regular activities including vacations. International traffic and corporate travel demand are also on a rebound, making for a profitable second-quarter for most of the major carriers. Airline shares have been battered in recent weeks on concerns that higher air fares, a worsening economic outlook, persistently high inflation and rising interest rates could dent travel spending in the second half of the year.

Why it matters

The airline industry's decision to let go thousands of workers at the height of the coronavirus pandemic in 2020 has left it ill-equipped to deal with a surge in consumer demand. Carriers are struggling to ramp up capacity and get operations back on a smoother track, resulting in higher operational costs. Deltas headcount has reached 95% of pre-pandemic levels, but training backlogs have left it short-staffed.


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