Delta CEO Ed Bastian Talks Travel Demand, Prices

**SPEAKER_1** (0:02)
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**John** (0:07)
In the last few days, we've heard from the airlines. Investors gearing up for the major airlines to report after Delta reaffirmed its full year profit guidance. The company seeing strong demand despite higher fuel prices. Lisa, join us now from Atlanta with a special guest. Hey Abramowicz.

**Lisa Abramowicz** (0:22)
Hey, how's it going John? I am here in Atlanta at the headquarters of Delta, and I'm here with Ed Bastian, Chief Executive Officer of Delta after reporting earnings, overcoming what was a record bill for fuel, and still continuing to maintain full year forecast. You talk about the difficulties of this quarter, as well as the resilience of the US consumer. How much momentum is there under the US consumer?

**Ed Bastian** (0:47)
Well, first of all, thank you for coming down. You know, there's not just one consumer in our marketplace, but broadly speaking, I think the consumer is doing well. Certainly the higher end consumer is doing very, very well. That's our consumer base.
When you look at what's happening in the market, when you see what's happening in real estate, opportunities for that consumer to invest in themselves, invest in the experienced economy. They may not be buying things as much, but they're investing in things they care about for themselves, their families, their friends and the future. And that's travel.

**Lisa Abramowicz** (1:18)
You also talk about the difficulty, and we have seen oil prices inflect a bit higher. How much room do you have to maneuver if this is the new normal or potentially $80 on Brent Crude is the new normal, which we're just up against?

**Ed Bastian** (1:31)
I think we'll do just fine. You know, we looked at our business model. Our business model is geared towards a higher-end consumer. So our consumer has the ability to sustain this level. In fact, we saw it in the quarter. We made that 9% operating margin with fuel prices much higher than where they are in the existing landscape.
So I think oil is going to stay sticky for longer. I'm not sure it's going to be in crude, though. I think the refined cost or the crack spreads are where you're going to find it's going to take a lot longer for that to come down. All that's going to mean is those brands that bring value to consumers in terms of experience, bring opportunity for people to go and explore and give them adventure as their means for enjoying life and getting away and our international travel season is looking very, very healthy. Businesses, international, as I just said, American Express, our loyalty programs, our cargo business arm, we have so many different lines of business, including here in the US., our domestic travel. It's all doing very, very well and I don't see fuel prices deterring that.

**Lisa Abramowicz** (2:40)
You talk about how this has been a sea change in terms of the ability for airlines to catch up with the pace of inflation, not completely, but enough. You saw a big jump up in airline prices over the quarter. How much further do they have to go to catch up and potentially offset stickier oil prices?

**Ed Bastian** (2:58)
If you look at post-COVID, airfares are about 10 to 15 percent below where inflation has been. So I think there's still significant room.

**Lisa Abramowicz** (3:07)
So if oil prices go further, you think that airfare prices could go higher without causing just demand destruction?

**Ed Bastian** (3:14)
We just saw it in the quarter.

**Lisa Abramowicz** (3:16)
Is it going to come across the board or more particularly with the premium cabin?

**Ed Bastian** (3:19)
It's going to be in the premium cabins. When we look at the lower end of the market, the low fare carriers, they're still losing a lot of money. And so while Delta, which is at the top of the food chain, did very well, we represented 60 percent of the overall profits for the industry, our estimate in the quarter, despite only having 20 percent share. It means the other 80 percent still has a lot of work to do to get caught up. And it's going to happen by being more disciplined in terms of the strategies they deploy, making certain that they can only put out capacity that is profitable that will return a margin to them.

**Lisa Abramowicz** (3:56)
Do you think that there's going to be more consolidation? Have you been surprised that there hasn't been more during this period of higher prices?

**Ed Bastian** (4:02)
No, I'm not surprised. There's been some in the market, on the lower end, there's been some.
I think we're going to be fine. We're going to get through this period of time. Now, if you said that this is going to afford our oil, it's going to be sustainable for a very long period of time, of course it will be, but not in this marketplace. I don't see oil prices returning back to the peaks we saw a few months ago.