Delta Air Lines CEO Ed Bastian says oil prices will stay "sticky for longer," but the carrier will still do "just fine." He says there is still ...
What Edward Bastian said
Written from the verified transcript and checked against it. Every figure links to the moment it was said.
Delta CEO Ed Bastian said the US consumer, especially the higher-end segment that Delta serves, remains resilient and is spending on experiences like travel rather than goods. He argued Delta's premium-focused business model can withstand sticky oil prices, noting the airline posted a 9% operating margin in the quarter despite higher fuel costs. Bastian said post-COVID airfares are still 10-15% below inflation, leaving room to raise prices, particularly in premium cabins, without destroying demand. He highlighted that Delta represented an estimated 60% of industry profits in the quarter with only 20% market share, while low-cost carriers continue to lose money. He discussed Delta's new basic business product as part of a broader merchandising strategy, defended the difficulty of competing in premium travel, and said Delta will remain disciplined on capacity. He also said pilot staffing is at a good level.
Key takeaways
Delta made a 9% operating margin in the quarter despite fuel prices much higher than current levels.
Post-COVID airfares are still 10-15% below where inflation has been, leaving room for price increases.
Delta represented an estimated 60% of overall industry profits in the quarter despite having only 20% share.
Delta's main cabin unit revenue grew 10% year-over-year after reducing supply.
Delta will remain disciplined on capacity, only adding capacity that is profitable.
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 joins us now from Atlanta with a special guest. Hey, Bremo.
Hey. How's it going, John? I am here in Atlanta at the headquarters of Delta and I'm here with Ed Bastian, the 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?
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 experience economy. They may not be buying things as much, but they're investing in things they care about for themselves, their families, their friends in the future, and that's travel. 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? I think we'll do just fine. You know, we look 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 a 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 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, 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.
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 does it have to catch up and potentially offset stickier oil prices?
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% of the overall profits for the industry are estimated in the quarter despite only having 20% share. That means the other 80% 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 and will return a margin to them.
