Ongoing macroeconomic headwinds and labor realities are grounding Delta Air Lines’ near-term outlook.
The Atlanta-based airline told investors during its Friday (Jan. 12) December quarter and full-year 2023 earnings call that the last two years were a period of intense restoration. Now, the company is “entering a period of optimization.”
Delta’s full-year earnings per share guidance was adjusted to $6 to $7, below the company’s own $7 forecast from 2022, despite most recent fourth-quarter results beating expectations.
As a result, Delta’s stock fell more than 7% Friday morning, and a selloff took place across other major airline shares as well.
“The level of volatility we see is giving us the caution in our 2024 numbers, which I have great confidence in us hitting,” Delta CEO Ed Bastian said on the call. “There are a bunch of macros that we need to see how they play out, the geopolitical front continues to be quite testy, it’s an election season around the world, energy prices are volatile. And to me, the supply chain costs and constraints continue unabated.
“We are not making progress,” he said. “If anything, every bit of news seems to be worse, not better.”
“We should hope to overachieve,” he added. “In 2024, demand for air travel remains strong, and our customer base is in a healthy financial position with travel a top priority.”
Delta, like much of the marketplace across sectors, has been increasingly leaning on connected, digital experiences to drive growth and engagement across its traveler audience.
The airline added Walmart+ to its Delta Sync partner suite and noted in its earnings presentation that engagement with the Delta SkyMiles program reached an all-time high, with record membership growth, co-brand spend and revenue from travel-adjacent services.
Underscoring the ongoing digital transformation of travel, the Fly Delta App crossed 1 billion in annual visits in 2023, up 25% year over year.
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Business Travel’s Return to Flight
Business travel, a key revenue engine for airlines, was highlighted during the earnings call as a bright spot.
“We are seeing continued improvement in the corporate sector,” Bastian said. “We had a number of laggards, tech being the largest, and we’re finally starting to see tech companies traveling again as a result of return to office, the consultancies as well. We are seeing it across the board. The auto and entertainment sectors have rebounded nicely following the strikes in the fourth quarter.”
Delta President Glen Hauenstein told investors on the call that Delta expects travelers’ use of travel credit to normalize in the current quarter. He explained that record numbers of people paid to sit in Delta’s higher-priced cabins such as first class or premium economy in the last quarter, driving revenue from premium cabins up 15% during the period, and outpacing 10% revenue growth from standard coach seats.
“We’re more cognizant of the entire ladder and trying to get customers to realize the benefits of higher quality,” he said.
Added Bastian: “We’ve been using older models to predict behavioral patterns, but now we are upgrading those to drive better outcomes. There’s a tremendous amount of opportunity to get better… I think you’ll start to hear the cash registers start to ring.”
Dealing With Disruptions Requires a Deft Touch and Deep Pockets
The airline industry was rocked Jan. 5 after a fuselage panel blew out on a Boeing 737 Max 9 being operated by Alaska Airlines while the plane was 16,000 feet in the air.
The incident underscores ongoing challenges facing the air travel sector around plane repair, maintenance, skilled labor and more general supply chain bottlenecks.
“It’s taking longer to fix planes and taking longer to put them back into service,” Delta executives said. Aircraft repairs and the parts supply chain are “the biggest [areas] of the business that has not returned to a pre-pandemic level of performance.”
“We’re continuing to work through the implications of the supply chain issues on the engine side of the business,” Bastian said. “We have a lot of reliance on Pratt, and the challenges they’re facing have been well chronicled… Everyone has challenges in the engine world, from a repair and maintenance standpoint, and a lot of it is an experience element.”
He added that it is an ongoing “lift for Delta’s tech ops team” to work within their entire supply chain to continue to improve execution. “We are focused on training and hiring.”
