In a surprising turn of events, the U.S. Labor Department revealed on Wednesday that airline fares experienced a staggering 8.1% decline during the month of June. However, this revelation seemed to have caught Delta Air Lines off guard, as the company’s top executives expressed their skepticism during the carrier’s second-quarter earnings call. Delta President Glen Hauenstein criticized the Labor Department’s methodology, emphasizing the disparities between their data and Delta’s internal analysis, as reported by the Associated Press.
During the call, Delta President Ed Bastian shed some light on the unconventional demand patterns experienced in May and June of 2022. In a rather perplexing twist, demand for air travel, which had previously been stagnant, suddenly surged. Consequently, fares skyrocketed by a staggering 30% to 40% to 50%. Bastian cautioned that such drastic fluctuations were clearly unsustainable in the long run.
The Department of Labor’s Bureau of Labor Statistics acknowledged the decline in airfares in a news release detailing the Consumer Price Index (CPI) statistic for June. The decline in airline fares played a pivotal role in maintaining the CPI increase for the month at a minimal level of 0.2%.
Despite the contrasting data, Delta’s executives remained resolute in their belief that the airline economy was thriving, buoyed by unwaveringly high demand. Bastian highlighted the constructive industry backdrop, emphasizing the robustness of air travel demand and the strong financial position of consumers, particularly the premium consumer base targeted by Delta. He emphasized that after years of splurging on material goods, consumers now prioritize travel as their number one big-ticket expenditure, and Delta excels in providing unparalleled premium experiences.
Bastian also acknowledged the challenges faced by the aviation industry, citing fragile aviation infrastructure and numerous constraints across the supply chain, such as aircraft delivery delays and training issues. This has led to a significant gap between supply and demand, a discrepancy that Delta anticipates will persist in the foreseeable future.
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Gazing into the future, Hauenstein expressed confidence in the strong demand for both domestic and international travel. Contrary to the traditional lull in leisure traffic after Labor Day, Delta expects robust leisure demand to continue throughout October. Moreover, there are promising bookings for business travel during October, followed by a positive outlook for holiday travel.
When questioned about the potential benefits stemming from the impending shutdown of American Airlines’ Northeast Alliance with JetBlue, which could result in Delta and United dominating the New York market, Hauenstein remained nonchalant. He reassured investors and analysts that Delta has always thrived in the highly competitive New York market and intends to stay the course with their long-term strategy.
Following the release of these developments, Delta’s shares experienced a modest increase of approximately 1%, trading at $48.60 by early afternoon on Thursday. Catherine O’Brien, an airline analyst from Goldman Sachs, expressed optimism about Delta’s financial performance, highlighting the airline’s June quarterly adjusted EPS of $2.68, surpassing both the high end of their revised guidance ($2.25 to $2.50) and GSe/FactSet consensus ($2.40). This positive outcome was attributed to better revenue generation and reduced non-operating costs.
Helane Becker, an analyst from Cowen, echoed this sentiment, predicting a potential increase in Delta’s shares. She emphasized that Delta’s shares remain appealing, with a price-to-earnings ratio of only 6.6x for the fiscal year 2022 earnings per share.
Despite the discrepancy between the U.S. Labor Department’s CPI statistics and Delta Air Lines’ internal analysis, the airline remains confident in its ability to navigate the challenges posed by fluctuating airline fares. Delta’s top executives firmly believe in the strength of air travel demand, especially among premium consumers, and anticipate a positive outlook for both leisure and business travel. As Delta continues to excel in the competitive aviation market, their financial performance remains promising, attracting the attention of investors and analysts alike.