Delta: Higher airfares expected to last despite drop in oil prices

Delta Airlines has said that elevated airfares are likely to persist despite a recent drop in oil prices. The company reported strong appetite for travel and record-high revenue in its quarterly results released Friday.

Although Delta had its highest quarterly fuel expense in history, demand has been high enough to pass along 60% of its extra fuel costs to consumers, CEO Ed Bastian told CNBC, with plans to eventually pass along all elevated costs.

“The demand for air travel is really strong, and as a result of that, we posted a $1.4bn profit,” Bastian said.

Airlines across the board have had to pass on elevated fuel costs to customers or cut routes this year as the war in the Middle East drove oil prices up. While some Americans have been forced to cut or adjust their travel plans amid higher fares, others appear unwilling to sacrifice their plans. AAA estimated that a record-high number of Americans drove or flew for their Independence Day holiday plans, despite high gas prices.

Bastian estimated that 60% of the airline industry’s profits this quarter would come from Delta, which holds 20% of the market share. Delta is the first airline to report its second-quarter results; United Airlines and American Airlines will announce their earnings later this month.

Bastian noted that Delta consumers are at the “top end” of the K-shaped economy, calling them “financially very healthy” with a “tremendous amount of wealth accumulation”. In its earnings report, Delta reported that its premium revenue grew 17% year-over-year, whereas main cabin sales increased by just 8% over the same period. Earlier this week, the airline expanded its premium offerings, launching a “basic business” option that offers business class without expedited check-in or lounge access.

“When you ask our consumers what is their main purpose and use of discretionary funds, they’ll say we want to participate in the experience economy, with air travel being the number one,” Bastian said. “We want to go places. We want to see things.”

Despite airfares that are up between 12 to 15% from last year, Bastian said airfares “continue to be a tremendous bargain”, amid overall inflationary pressures. He added that Delta flyers were still willing to spend on travel, citing the “post-Covid effect”.