Delta aims to increase corporate airfares as one defense
against rising fuel costs in the coming months, executives said in the
carrier's earnings call on Thursday.
Fuel costs in the second quarter were up about $600 million,
or 32 percent, year over year and accounted for about half of a $1.1
billion increase in total expenses during the quarter. For the full year, CEO Ed
Bastian said fuel costs were likely to run $2 billion higher than last year.
At the same time, Delta is reporting strong demand from its
corporate customers. Delta president Glen Hauenstein said corporate revenues
during the quarter were the highest ever, up 10 percent year over year, and
were up across all industry sectors. Delta's recent survey of travel managers
indicated that 84 percent expect their travel spending will stay the same or
increase during the third quarter, he said.
Overall, Delta has reported success in pushing up fares this
year. Bastian said that pricing was up about 4 percent year over year at this
point, and yields were up year over year across all global regions during the
second quarter, including a 2.5 percent increase in domestic yield and a 11.1
percent increase in transatlantic yield.
Domestic corporate airfares, however, have recovered only 20
percent of the declines seen since the fares peaked in 2014, however,
Hauenstein said.
"While we saw sequential improvements in corporate
yields within each of the three months in the second quarter, we still see
great opportunity and momentum as we continue to work every day to recapture
the cost of higher fuel," he said.
In a research note, Cowen and Co. analyst Helane Becker said
that corporate airfares appeared on track to continue to increase during the
third quarter.
"The underlying demand environment is robust in
business and leisure fare classes," according to Becker. "The issue
has been despite strong demand, the airlines are unable to aggressively raise
fares. In recent weeks, low fares in the U.S. domestic market have started to
trend higher, and there has been a renewed focus on raising fares in the
premium cabin."
While Delta projects its capacity will be up about 3 percent
year over year for the full year 2018, it trimmed its capacity projects for the
fall slightly, focusing on markets where its fares would be unable to make up
the rising fuel costs, Hauenstein said.
Passenger revenues for the quarter increased 8 percent year
over year to $10.5 billion. Traffic was up 3.2 percent as Delta increased
capacity 3.5 percent. Load factor declined 0.2 percentage points to 86.7
percent.
Delta reported a net income of $1.03 billion for the
quarter, down 14 percent from its $1.19 billion net income in the third quarter
of 2017.
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