Delta CEO sees ‘marginal benefit’ as rivals grapple with Boeing MAX grounding

Atlanta — Delta Air Lines sees the momentum behind 6.5% quarterly revenue growth continuing throughout 2019, CEO Ed Bastian says, citing strong domestic demand that drove an increase in its full-year profit forecast.  

Shares in Delta gained about 2% in premarket trading after the number two US carrier posted a 39% surge in quarterly profit, benefiting from higher fares and fuller planes.

Atlanta-based Delta is the first of US major airlines to report second-quarter earnings, which investors are scouring for signs of weakening consumer demand and the impact of supply constraints due to the three-month grounding of Boeing’s 737 MAX.

Delta does not operate the MAX, which remains grounded following two fatal crashes, allowing it to avoid fleet headaches that have plagued North American MAX carriers, including Southwest Airlines, American Airlines and United Airlines, while picking up passengers that competitors did not have enough aircraft to fly.

Bastian said the MAX grounding had a “marginal benefit” on second-quarter results, but attributed the real growth driver to demand strength and higher premium ticket prices.

“We had five of the top 10 revenue days in our history just within our last 30 days and we see that momentum continuing to grow throughout the year,” Bastian said.

“I don't think it’s as much the MAX as Delta that’s driving that,” he said.

As a result, Delta lifted its full-year profit forecast to $6.75-$7.25 per share from a previous range of $6-$7.

Supply constraints related to the 737 MAX are expected to help second-quarter unit revenues, a closely watched measurement of revenues per available seat mile, across the sector, even for MAX operators. For Delta, adjusted unit revenues rose 3.8% in the quarter, driven by growth in both leisure and corporate travel.

Demand soars

“Delta’s operation is clearly executing well to extract maximum value from the searing demand for air travel we are observing this summer,” Credit Suisse analyst Jose Caiado said.

Strong US air travel demand is expected to continue in the coming months, though going forward the company is closely watching volatile fuel prices and global economic development, Bastian said.

He said Delta, which is seeking to grow internationally, remains committed to investing about $100m to acquire about 10% of ailing Italian flag carrier Alitalia, which the Italian government is trying to rescue for the third time.

Delta continues to vet potential partners alongside Alitalia and the Italian government, Bastian said, noting: “I think Alitalia has a promising future with the right ownership structure in place”.

Infrastructure group Atlantia is seen as a possible investor in Alitalia, alongside Ferrovie dello Stato.

Delta’s net income rose to $1.44bn, or $2.21 per share, in the quarter ended June 30 from $1.04bn, or $1.49 per share, a year earlier.

On an adjusted basis, the airline earned $2.35 per share for the quarter. Analysts on average expected a profit of $2.28 per share, according to IBES data from Refinitiv.

Total operating revenue rose 6.5% to $12.54bn.

Reuters