Delta's Monster Second Quarter
It set a bunch of records. But you knew those were coming.
During the pandemic, Delta Air Lines took criticism for not changing its business approach as much as other airlines. Delta grew slightly in strategic coastal markets such as Los Angeles and invested in airport terminals, but for the most part it simply waited out the pandemic, retaining its network and its premium strategy even as competitors markedly changed offerings. CEO Ed Bastian didn’t want Delta to jeopardize its standing as the most upscale U.S. carrier.
Maybe Delta is winning today because of its pandemic strategy. Or perhaps demand is just so good that Delta was going to make a fortune regardless of what it did in 2020 or 2021. Either way, Delta’s second quarter results, announced Thursday, were impressive. The airline reported record operating revenue ($15.6 billion), and strong operating margin (16 percent) along with robust pretax income ($2.3 billion). About the only second quarter number that wasn’t big was unit revenue, measured by Total Revenue Per Available Seat Mile, which went up only 1 percent, year-over-year.
Delta expects strong results from the summer quarter, which began July 1, promising revenue up 11-14 percent, with an operating margin in the mid-teens. People are still spending on air travel, and Delta is a major beneficiary — so much so that executives said the airline will be fine even if business travel doesn’t fully recover. (They still hope it will.)
“Air travel demand is strong, and the consumer is in good financial shape, particularly the premium consumer base that we target,” Bastian said.
This was not the most interesting earnings call. Delta held an investor day on June 27, sharing details about the profit gap between its coastal and interior hubs, its WiFI strategy, its plan to increase credit card revenue, and its missteps in New York, as well as other juicy topics. (If you missed that recap from me, here’s a quick link.) By comparison, Thursday’s call was short, without many of the nuggets we crave from airline president Glen Hauenstein. But he did share a few, including why Delta’s Atlanta hub already had its summer peak, how demand for Southern Europe (but not Northern Europe) is changing, and why Delta doesn’t want investors too focused on this week’s Consumer Price Index (CPI) data.
Here are a few items I found most interesting.