ATLANTA- The surge in airline business witnessed in the aftermath of the pandemic last year has mostly subsided. However, Delta Air Lines (DL) revealed on Friday (Jan 12, 2024) that there is still strong demand from middle-class and affluent travelers, the primary target audience for the carrier.
Interestingly, the airline’s executives highlighted consistent improvements in corporate travel, especially among auto and entertainment executives who have returned to their usual travel patterns following major disruptions last year.
Business from Corporate Travelers
President Glen Hauenstein mentioned during an earnings call that many large technology firms are also gradually resuming travel.
“We’re beginning to observe tech companies traveling again, and a significant part of this resurgence is attributed to the return to office,” he stated. Corporate travel endured significant setbacks during the pandemic and has been slow to recover to pre-pandemic levels.
On a broader scale, Delta Air Lines has announced its plans to make adjustments to its route network and fleet in 2024, following two years of rapid expansion that saw a resurgence in flying after the pandemic-induced slowdown. The airline aims to enhance workforce productivity during this period.
Similar to rival Southwest Airlines and others, Delta has largely reinstated its flying capacity after significant reductions in 2020 and 2021. The focus for the current year is on optimizing schedules to maximize profitability.
Delta CEO Ed Bastian remarked, “Industry growth is returning to normalcy after several years of rebuilding the network.” This translates to a capped capacity growth of no more than 5% this year for Delta, following two years of seat mile growth ranging from 10% to 15%. Bastian noted that domestically, supply and demand are achieving a better balance.
Delta Profit for 2023; 2024 Forecast
In terms of financial outlook, Delta anticipates earnings in the range of $6 to $7 per share in 2024, slightly below its previous guidance of over $7.
This adjustment is described as a “prudent” move by Bastian, considering the geopolitical volatility globally and the prevalence of national elections, including those in the United States. Delta had earned $6.25 per share in 2023.
The revised 2024 forecast had a substantial impact on Delta’s stock, causing it to drop by more than 8% on Friday and pulling down the entire industry.
United Airlines saw a nearly 9% decline in shares, while American experienced an 8.5% decrease. Alaska’s shares dropped by almost 6%, Frontier by 6.8%, Southwest by 4.5%, and JetBlue by 4%.
In the fourth quarter, the Atlanta-based carrier reported a pretax earning of $2.3 billion, contributing to a total of $5.6 billion for the entire year of 2023, with full-year revenue reaching $58 billion. Delta is anticipating record revenue for the first quarter.
Despite these positive financial indicators, the airline is grappling with ongoing supply chain constraints and escalating costs that show no signs of abating, according to executives.
Delta’s CEO, Ed Bastian, expressed concerns, stating, “Every piece of news we receive regarding the supply chain appears to be more challenging rather than improving.”
Increase in Expenditure
Delta is projected to increase its spending on aircraft and engine maintenance by $350 million this year compared to the previous year.
This heightened expenditure is a response to challenges faced by suppliers such as Airbus, Boeing, Pratt & Whitney, and others, who are contending with elevated costs, shortages of parts, and labor constraints.
The airline acknowledges substantial opportunities for increased efficiency in labor productivity rates. Despite maintaining the same level of operations, Delta’s workforce has expanded by 10%, totaling 100,000 employees in 2019.
In addition to these developments, Delta has revealed its intention to acquire 20 wide-body Airbus A350-1000 aircraft, the largest in the A350 family, with an option for an additional 20. The delivery of these aircraft is scheduled to commence in 2026.
Furthermore, on the same day, Delta announced its plan to distribute $1.4 billion in annual employee profit-sharing payments on February 14. This amount is equivalent to approximately 10% of each worker’s annual salary.
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