Delta sees recovery in international and business travel, which has lagged

Delta is profitable for the second time in a row, and more importantly, it expects strong future demand for business and international travel, which has been a weak link in the early days of the pandemic recovery.

On Thursday, Delta Air Lines became the first airline to report third-quarter results. Delta shares were up about 4% in premarket trading 90 minutes before the open. Shares closed Wednesday at $29.21.

“With improved business travel and strong domestic and international demand, we expect December quarter revenue to be higher than the December 2019 quarter,” Delta President Glenn Hohenstein said in a prepared statement. 5% to 9%.” The airline forecasts its fourth-quarter operating margin to be between 9% and 11%.

“We’re in a counter-cyclical recovery,” Delta Air Lines CEO Ed Bastian told Fairlebeau earlier Tuesday on CNBC’s Squawk Box. “We are still resuming operations. We are at 83% (pre-pandemic capacity:”

If passengers return, Delta’s cost per passenger will drop because the airline has ramped up operations. As a result, during the quarter, Delta expects a 10 percent reduction in non-fuel unit costs.

“Consumer demand remains strong as demand for international travel improves,” the airline said in a prepared statement. In the third quarter, “compared to the September 2019 quarter, domestic passenger revenue increased 2% and international passenger revenue recovered 97%.”

In addition, “for the first time since the pandemic, international unit revenue growth outpaced domestic,” the airline said. “Transatlantic demand was driven by leisure destinations such as Italy, Spain and Greece, as well as improved commercial demand, with transatlantic revenue up 12% compared to 2019.”

As for the slow-to-recover business, Delta said corporate sales to large corporate customers “increased after Labor Day and are at their strongest recovery rate since the start of the pandemic, at 80% of 2019 levels in the quarter. Finish.”

“The least recovering sectors have accelerated their recovery, with recent business survey results showing positive expectations for business travel, with nearly 90% of customers saying their travel will remain the same or increase in the December quarter compared to the September quarter. “

Third-quarter revenue was approximately $14.0 billion, and adjusted revenue was $12.8 billion, up 3% from the same period in 2019. Net income was $695 million, or $1.08 per share, down from a profit of $1.5 billion in 2019. Operating margin was 11.6%, and earnings per share were $1.51, including a 3-cent negative impact from Hurricane Ian.

Ian’s revenue fell $35 million in September due to weak cancellations and bookings, and a similar impact is expected in October.

“We reached a significant milestone in the quarter with adjusted revenue up 3% and unit revenue up 23% compared to 2019, the highest quarterly revenue and unit revenue in Delta’s history,” Hornstein said.

Meanwhile, contract negotiations with pilots appear to be moving forward, but in the meantime, Delta pilots have 1,017 days to amend their contracts. Negotiators will meet in Fort Lauderdale this week.

On the Squawk Box, Bastian told Le Beau that the airline had settled 22 or 23 of the 28 contract segments when it negotiated contracts with its pilots. “Our pilots are the best,” he said. “They deserve the best.”

“Delta executives are bullish on the future but have yet to invest in its pilots,” Jason Ambrosi, president of the Delta chapter of the Airline Pilots Association, said in a prepared statement Thursday.

“Delta pilots are working under a contract negotiated in 2016,” Ambrosi said. “A strike authorization vote is underway to clearly send a message to management.”

Meanwhile, other major airline industry trends for Delta were evident in the third quarter. Premium products continue to outperform: Premium revenue increased 8% from 2019, outpacing main cabin revenue growth of 10 percentage points. On the Squawk Box, Bastian said passengers are “investing in themselves and the experience.”

Additionally, the importance of credit card sales continues to soar across the industry.Delta credit card partner American Express pays third quarter
$1.4 billion, an increase of 37% compared to the same period in 2019. Delta expects full-year 2022 credit card compensation of $5.5 billion.

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