DAL’s Earnings Miss Masks a Bigger Shift in the Airline Industry

SPEAKER_1 (0:00)

For more on Delta and the other airlines, let's bring in our panel. Joining us today, Meghna Maharishi, the airline reporter over at Skift, and Mike Boyd, president of Boyd Group International. Meghna, let's start with you. I mean, we saw the miss on both earnings and revenue. We saw the cut guidance here. How much of this is simply an oil shock versus how much does it actually change the overall investment case for Delta and arguably some of the other airlines?

Meghna Maharishi (0:27)

Yeah. Well, I mean, Delta executives are arguing that this is 100 percent fuel and nothing else that caused the cut to their profit outlook for the year.

I think though, as far as things go, as far as that investment thesis goes for Delta, they still had a pretty strong quarter. They had a 16 percent increase in revenue and reported a net income of 756 million. And they're one of the few airlines that are still on track to make a profit this year, despite the fact that fuel costs have more than doubled compared to last year. So I think the case for Delta is still solid. And I think of all the airlines in the US that are out there, they're definitely one of the best suited to weather a lot of this uncertainty. And their CFO had also told some reporters that Delta has already accrued like $900 million in profit sharing for 2027 So I think their business just seems to be one of the among the best suited to weather a lot of this fuel shock and uncertainty that we've been seeing throughout the year.

SPEAKER_1 (1:32)

And Mike, how are you looking at Delta in the wake of this report? I mean, we saw the miss, but at the same time, we also saw that it generated about $4.5 billion in pre-tax profit, while it's still absorbed a $6 billion fuel hit. So how are you looking at Delta and what it's going to need to do going forward?

Mike Boyd (1:51)

Look, this is a different entity. Every time we've had one of these tectonic moves, whether it be 9-11 or COVID or whatever, the airlines have adjusted, but they haven't gone back. So what we saw from beyond what Mr. Bastian said, they're going to be rethinking how they do business and where they do business. In particular, they're going to be looking at the whole different metric of what their fleet can do.

They have like 400 airplanes leased in for misnamed regional airlines, and those airplanes are not going to have the same economics. That's going to change how they fly. Plus, Delta has found there's a good deal of flexibility in getting higher fares, which means they're going to change probably some of their strategies going forward because they have to. So you're right, it's going to be a profitable airline going forward. But it's also going to be one that's going to be recognizing the new economics, and that's going to affect the entire air transportation system, not just Delta.

SPEAKER_1 (2:47)

And Meghna, what do you have to say to that? Delta reported that it's seeing strong demand across business, across leisure, premium, and main cabin travel. But we also have data from TSA saying that passenger volumes are down. So as you look at what they're saying, are you seeing early signs of demand deterioration? And how do you view Delta and the potential for it changing its strategy up as it appears that the higher spending travelers are possibly keeping the industry afloat?

Meghna Maharishi (3:18)

Yeah, I think we're going to just see Delta and other airlines just do more to court those high-spending travelers and to encourage more engagement with them. Since 2023, that cohort of travelers has pretty much been fueling a lot of the profits in the airline industry. And I think it's why Delta and United have been the two airlines that have really led the pack for the past three years or so.

So I think we're just going to expect to see more of that. I mean, we're already kind of seeing that a little bit. Delta, for example, they're going to refurbish their business class cabins known as Delta One. United, Alaska, and American are all adding business class seats. There's now some speculation that maybe Southwest could also go into business class based on the Reuter story that came out yesterday that they're considering a wide body order of some sort, and they also released lounges. So airlines are still pushing forward with a lot of these premium investments despite facing these high fuel costs. And I think also for the most part this year these are the airlines that have also been able to pass on fair increases to consumers and it hasn't at least impacted the demand that they've seen. I think with ultra low cost carriers, on the other hand, that might be a different story.