Delta Air Lines says demand is so strong that it can easily recover the recent dramatic run-up in the cost of fuel.
“We are very very confident of our ability to recover over 100% of the fuel price run-up,” Delta President Glen Hauenstein said Tuesday at a JP Morgan investor conference. A week ago, on Tuesday, March 8, Delta recorded the highest sales day in its history, he noted.
Delta’s recovery is being enabled by strong demand as well as the characteristics of its customer base, Hauenstein said.
In mid-morning trading following the presentation, Delta shares were up 8% tp $34.68.
“We’re seeing an increase in demand that is really unparalleled,” he said. “We all knew there was pent up demand in the industry, (but) I have never and I don’t think our revenue management team has ever seen demand turn on so quickly.”
Delta expects to pay an average of $2.80 per gallon for jet fuel in the current quarter. Given the rapid run-up, “We need to recapture between $15 and $20 on an average ticket value of $200,” Hauenstein sad. “We feel very confident that we will capture it in the second quarter.
It typically takes 60 days to recover the cost of a fuel price runup, Hauenstein said.
Responding to a question, he said Delta is better positioned than its low-cost competitors.
“We look at our target audience, the demographics, and we see the increase we have to pass through as something very achievable without demand destruction,” he said.
By contrast, for a low cost/low fare competitor, “The increase as a percent of the fare itself is much more dramatic for them then it was for us,” he said. Their target audience is probably more pressured than our target customer.”
For most carriers, an unexpected trend during the pandemic has been higher demand…