Delta Air Lines is earning half the industry’s profit. They had a 13.6% operating margin and made $1.3 billion in the last quarter. That’s great – except that both figures are down year-over-year and the airline lowered its guidance for the third quarter as well. Their stock lost 8% of its value at the open on Thursday’s morning’s announcement, though it gained half of that back by the end of the trading day.
The airline’s spin is that there’s too much capacity, and the problem is other airlines, but the industry is correcting itself. In other words, the problem isn’t Delta, and going forward Delta won’t have a problem. I don’t think this actually makes sense.
- Delta says the problem is other airlines adding too much capacity. According to Delta President Glen Hauenstein,
[D]omestic industry seat growth accelerated into the summer months beyond normal demand growth. This has impacted Main Cabin unit revenue trends through the summer. With scheduled seat growth decelerating into the fall, June and July will be the low point with unit revenue trends expected to significantly improve in August and beyond.
But the number of seats in the domestic market are up 6% year-over-year, according to aviation analytics company Cirium. Delta is up 5%. Delta domestic seats grew roughly on par with the industry.
Across the Atlantic, Delta seat growth was 5% and exceeded United and British Airways. Seat growth was led by Air France, which is part-owned by and a joint venture partner of Delta vassal Virgin Atlantic grew 9%.
While they say they expect other airlines to trim capacity, Delta isn’t doing its part, and their capacity is expected to grow faster than revenue.
For the September quarter, we expect capacity growth of 5% to 6% and revenue growth of 2% to 4%.
- And if the problem is too much capacity, then Delta is actually saying air travel is commoditized. Their message for years has been that people choose Delta, that Delta offers a differentiated product. If that were true it shouldn’t matter if Spirit and Frontier are adding capacity. (And while Spirit and Frontier are growing seats, they aren’t growing more seats than Delta is.)
What we learn from the second quarter results is that most of the Delta Air Lines product remains a commodity, and the market knows this.
Ultimately Delta Air Lines stock trades at 6 to 7 times earnings because airlines are high fixed cost and cyclical businesses. They have high fixed costs and are highly vulnerable to changes in the cost of fuel. And at the end of the day most of the seats they sell are economy seats where price continues to prevail as the primary driver of consumer choice.
Before the pandemic they actually were trying to de-commoditize economy, where most of their customers fly. They were offering hot towels, welcome drinks and amenity kits in long haul coach as well as coursed-meals. They aren’t trying to do this anymore.
Delta Air Lines Economy Amenity Kits, 2019
The airline has been able to build a brand around premium product, but that only goes so far when the premium product isn’t better than what’s offered by competitors. They have more Boeing 767s than any other widebody type, and the business class seats on their 767s are inferior to what’s offered by American Airlines, United and JetBlue – and inferior to British Airways, Air France, KLM and Air Canada. They’re also behind American and United in differentiating their ground experience, and behind United in on board business class amenities.
And while Hauenstein talked about the success of their American Express relationship in the earnings call, noting that “American Express remuneration for the quarter was 1.9 billion, up 9% year over year,” SkyMiles isn’t a competitive differentiator that is a reason to choose Delta over other airlines helping to de-commoditize the product.
@ Tim — Yes, I can read. Of course, the world revolves around Tim Dunn.
marco,
the refinery IS part of Delta’s business.
You do recall that United tried to buy a refinery also but failed?
There isn’t a single line of business that Delta has that United couldn’t also have including credit card and engine maintenance service contracts – but UAL didn’t pursue that stuff or didn’t succceed near as well as Delta.
In fact, the real reason why UA is now fixated on growing its domestic position is because UA FINALLY figured out that domestic card spend is what drives profits – and UA was more interested in growing into global markets than growing its domestic network.
Now, UA thinks it will grow a domestic network and Delta made it clear that it will yield nothing to UA but will grow in the international market place. Unlike UA, DL can make money and more of it than UA in the international marketplace – which has nothing to do with the refinery.
You can’t stand to admit that Delta runs a better business and airline but feel free to keep up your deflection and denial.
I guess there is another “Marco” here, and that’s not me.
Anyway, UAL is notably better than DAL in so many aspects, ranging from its network, being in the biggest global alliance (Star), a much better mileage program, superior technology, and the list goes on.
All things considered, United is the premium airline and the de-facto global flagship carrier of the US.
“ You have relentlessly pushed the notion that Delta gets its profits by monopolizing fares at its core 4 hubs – and yet you not only can’t provide data”
Timmy
You’re just gonna love delta investor day decks one day once you put the drinks down and your mom lets you out of her basement to see the sunshine
You’re comical how you haven’t even seen this stuff
But…. I wasn’t fired from delta
You were. I guess you must be blocked from their sec filings? 😉
This isn’t my idea. It’s a story delta has sold to the street for years about why their story is more sustainable than others. Go look at it: delta is the one that talks about monopoly hubs and their profitability there. It sure isn’t me lol
Get a grip loser lol
It’s the core of your ethos 🙂 I certainly don’t care. It’s the delta story you ignore and hate but that delta sells to the street
Delta makes money from four hubs where they have no competition. It doesn’t take a rocket scientist to synthesis this. LAX, SEA, BOS, and New York are a wash. Tim Dunce can spin the numbers all he wants, but when push comes to shove, Delta has an advantage in it’s four biggest hubs that AA and UAL don’t enjoy.
once again, actual fare data argues AGAINST what you stooges want to believe – but it has been proven over and over that you won’t believe the truth because it is too hard for you to admit that DL makes good solid business decisions while UA is focused on status and size.
UA could have had a refinery and MRO contracts, has hubs that have a higher local market and yet you clowns think that DL succeeds because it screws its customers.
UA COULD make as much money as DL or more – but UA is more interested in dumping capacity over the Pacific last winter and into other markets including to keep competitors out – and UA hurts itself.
The fact that Delta made money flying the Pacific last winter while United loss money after dumping capacity tells you precisely why UA doesn’t make as much money as DL.
Add in that UA execs talk about dumping capacity into the domestic market in order to run the ULCCs out of business and it isn’t hard to see why DL’s comments about excess capacity were targeted as much – if not more – to United than the ULCCs
It doesn’t matter whether you see it or not. Boeing’s delivery delays have been the best thing to keep UA from self imploding.
Oh, and for those that continue to talk about how “few” aircraft DL has on order relative to UA, Jon Ostrower on the Air Show said accurately that DL and Airbus have the tightest relationship in the aviation industry which is why DL can be certain when it says that it will receive the capacity it needs from Airbus and that alarms go off in France when Airbus has to delay aircraft and Airbus makes sure Delta gets preferential treatment – not unexpected considering Delta is Airbus largest customer. You need only see that Delta will get 14 of 14 widebodies it has on order from Airbus this year while United will get a fraction of the 787s it has on order.
UA could have had all of this – but didn’t.
It isn’t hard for anyone who is objective to see why DL is the most profitable airline and why UA falls short but is a solid runner up.
I think the bigger shock is DL’s abysmal roll out of the Delta One lounge. Who ever thought United would kick Delta’s ass in the premium lounge game? Terrible planning, execution and policies make it nothing more than another overcrowded SkyLounge. Who can be shocked they are losing profits now?
Actually you didn’t think
The Delta One lounge is doing just fine and it will result in a movement of revenue from terminal 8 to terminal 4
Timmiboy you keep making statements that are not supported by the financials, you keep saying things that are impossible for you to know, and you say stupid things like “the refinery is part of Delta’s business” as if selling fuel to third parties had something to do with the airline business.
You don’t even know that Delta reports adjusted results without sales of the refinery to third parties because that’s not airline business. Only someone with your scarce financial knowledge would say that that’s part of Delta’s business.
Now I’m convinced. You’re a pathological liar. I believe you own Delta stock and you foolishly believe that your lies are gonna have an impact on the stock price. Don`t waste energy Timmiboy. You lies are not going to get you anywhere.
The only person that is a liar is anyone that doesn’t understand that the refinery IS part of Delta’s business. It reports its results INCUDING its refinery as part of its formal GAAP accounting.
It intentionally adjusts out the refinery in order to allow comparison to other airlines that do not have refineries – but that is NOT OFFICIAL profit data.
Delta’s profits are higher than any other airline even excluding the refinery.
It is YOU that doesn’t know what you are talking about – and yet you have the unmitigated gall to tell someone else they don’t know what they are talking about.
and, once again, AA or UA or any other airline could have bought a refinery. UA tried but failed.
There is nothing that Delta does to make money that any other airline – esp. AA and UA – could not have also done.
The root issue is that you and others can’t admit that Delta runs a more profitable business – even with ultra low cost carrier pricing, the unprofitable networks of AA that adds capacity that can’t make money, and UA that dumps capacity into the market trying to keep competitors out = only to hurt themselves while DL makes money.
and Marco,
if you actually read DL and UA’s financial statements, EVEN WHEN DL backed out the refinery income and profits in 2023, Delta still outperformed United’s revenue and profits.
YOU CAN’T STAND TO ADMIT THAT DELTA IS THE MOST PROFITABLE AIRLINE but the more you shake your fist in the sky, the more you prove my point and counter your own.
@Tim Dunn – “The only person that is a liar is anyone that doesn’t understand that the refinery IS part of Delta’s business. It reports its results INCUDING its refinery as part of its formal GAAP accounting.”
The refinery hasn’t been profitable for much of the time that Delta owned it, and much of the profits have been driven by subsidies. Yes, of course, the economics of the refinery are part of the overall economics of the business that owns it, that is not an interesting statement though.
@Tim Dunn “The Delta One lounge is doing just fine and it will result in a movement of revenue from terminal 8 to terminal 4”
There’s not all that much revenue in terminal 8 outside of London Heathrow, and the Delta One lounge isn’t going to move what little is left of terminal 8 revenue to Delta.
1) the London Heathrow revenue in terminal 8 is driven by frequency and brand loyalty
2) the foreign carriers like out of terminal 8 like Cathay Pacific, Qatar Airways, Japan Airlines, Qantas, Royal Jordanian fly to non-stop destinations Delta doesn’t service and in many cases offer a much better product than Delta
The remains of terminal 8 revenue isn’t going to move “to terminal 4” because of the Delta One lounge. That’s just a silly claim.
Gary,
Delta has broken out the performance of the refinery since the day Delta put it into service.
And Delta also said from day 1 that the purpose of the refinery was and is to reduce Delta’s fuel bill, not to make money on a standalone basis
The only people that don’t know what they are talking about -including you- are those that try to claim that, because Delta HAS TO report the refinery’s standalone results ALONGSIDE the total contribution to the airline focus only on the standalone results.
And, until AA flies no flights from JFK that are competitive with Delta, then there is very much the potential and likelihood that Delta will take revenue from AA.
And surely you realize that BA built its own lounges at T8 when they moved and CX is doing the same thing.
Delta’s hubris will be its downfall.
“The only person that is a liar is anyone that doesn’t understand that the refinery IS part of Delta’s business. It reports its results INCUDING its refinery as part of its formal GAAP accounting”
There you go again Timmiboy. Showing no knowledge about financials. There’s something called consolidation. Consolidation is mandatory when a company has control of another one. It doesn’t matter if the businesses have nothing in common. If I build aircraft and I have control of a food manufacturer, I have to consolidate.
Now Timmiboy, I know it’s difficult for you to understand. Am I a great aircraft manufacturer because I’m more profitable than my competitors because I have lower personnel expenses because my food manufacturer gives away food to my employees in compensation for the lower salaries I pay them?
That is exactly what Delta does to look more profitable. They force their refinery to sell them fuel with just a 6-cent margin per gallon when the other airlines buy with a 20-cent margin. They make their refinery less profitable than other refineries just to make Delta look more profitable. They simply don’t care if their refinery is a piece of sheet because the refinery is not traded publicly.
Price paid per gallon in Q3 2023, DAL 2.76 and UAL 2.95
Price paid per gallon in Q4 2023, DAL 3 and UAL 3.13
Price paid per gallon in Q12024, DAL 2.76 and UAL 2.88
Do ya see it Timmiboy? You ain’t dumb, right?
Delta doesn’t FORCE the refinery to do anything.
Refinery price spreads have been elevated since covid but are now stabilizing.
The refinery exists SOLELY to reduce the price of fuel to Delta Air Lines; in a few rare cases, esp. during covid when fuel demand was very low, the refinery operated at a loss and increased the cost of fuel for DL.
Delta has had $1 billion reductions in the price of fuel to the airline because of the refinery but is expected to deliver about 5 cents per gallon in 2024 because refinery margins are lower. But even 5 cents/gallon is still a quarter of a billion in lower fuel cost for DL per year.
And the point which you still can’t admit is that AA or UA or any other airline COULD ALSO have bought a refinery to get the same price benefit – but it is DL that did it and gains fuel cost benefits to the airline because of it.
And you also can’t admit that even in 2023, the fuel price benefit to Delta was less than half of the profit difference between DL and UA.
The refinery absolutely lowered DL’s fuel bill but there were other factors including the higher benefit from Amex/SkyMiles, something UA COULD ALSO HAVE DONE but didn’t.
You fundamentally can’t stand to admit that DL runs a better airline and a better business.
“And you also can’t admit that even in 2023, the fuel price benefit to Delta was less than half of the profit difference between DL and UA.”
You keep lying like a parrot even though I`ve posted the numbers before. I guess you can’t read either. Again, whoever can check these numbers in DAL and UAL financials.
In the last 4 quarters (up to Q124) fuel expenses for DAL 10991 million and 12431 for UAL. The difference is 1440 million. In that same period, the difference in operating income is just 1114 million. You can keep lying but the numbers are clear. The difference is just fuel. Without the fuel difference, UAL makes more money.