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Delta’s shares fall as price considerations overshadow quarterly efficiency By Reuters

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© Reuters. FILE PHOTO: A Delta Air Lines Airbus A350-900 takes off from Sydney Airport in Sydney, Australia on October 28, 2020. REUTERS / Loren Elliott

By Rajesh Kumar Singh and Sanjana Shivdas

(Reuters) – Delta Air Lines Inc on Wednesday warned of a fourth-quarter pre-tax loss due to a sharp rise in fuel prices after it posted its first quarterly profit without federal aid since the coronavirus pandemic, dragging its stocks down.

Oil prices have soared to multi-year highs, threatening the pace of a recovery in the aviation industry. Fuel costs alone accounted for nearly 20% of Delta’s adjusted operating costs in the third quarter. The airline said that every 5 cents increase in fuel prices increases its spending by about $ 40 million.

In response, Chief Executive Ed Bastian suggested that the airline may have to pass the increased costs on to consumers.

“There is nothing we can do to keep fuel prices down,” he said in an interview. “What we need to work on is our ability to incorporate this into our pricing.”

In the past, the aviation industry has been able to raise airfares to offset higher fuel costs. But with demand for air travel still well below pre-pandemic levels, such moves carry risks.

Delta’s shares fell 5.2% to $ 41.28 in midday trading.

The Atlanta-based airline said its earnings have recovered to two-thirds of 2019 levels due to a continued improvement in travel demand.

Bastian said the company’s sales are estimated to hit 75% of pre-pandemic levels in November and December thanks to strong vacation demand and an improvement in international and business travel. He expects corporate revenues to recover to 2019 levels in 2023.

U.S. airlines will be boosted by the Biden administration’s decision to reopen transatlantic routes in November, which accounted for up to 17% of the three major airlines’ 2019 passenger revenues.

Since the White House’s decision was announced, bookings for the transatlantic flights in November and December have increased more than six-fold, Delta said.

The airline also reported a pickup in business travel last month, saying the volume is now at its highest level since the air travel rebound began.

“If the restrictions are lifted we will see significant demand,” he said. “There’s a lot of interest and demand, not just from consumers but also from businesses coming to the US”

As a result, Bastian expects 2022 to be a good year for recovery after the coronavirus pandemic plunged air traffic into the worst downturn ever.

The airline has hired more than 8,000 employees since the beginning of 2021 and plans to hire more pilots, flight attendants and mechanics next year to meet the increased demand for air travel.

Delta, the first major US airline to release third-quarter financial results, forecast adjusted fuel prices per gallon to be between $ 2.25 and $ 2.40 for the current quarter, up from $ 1.94 for the quarter through September.

However, Citi analyst Stephen Trent believes the pace of recovery in demand, particularly on the transatlantic corridor, should ease Wall Street’s concerns over fuel price pressures.

“As we move into 2022, a sustained recovery in revenue seems more relevant than worrying about oil prices,” he said.

Adjusted earnings for the quarter were 30 cents per share, beating analysts’ average estimate of 17 cents per share, according to IBES data from Refinitiv.

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