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Delta Air Lines misses profit target as winter storm drives up costs

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© Reuters. FILE PHOTO: A Delta Air Lines Airbus A350-900 plane takes off from Sydney Airport in Sydney, Australia, October 28, 2020. REUTERS/Loren Elliott/File Photo

By Rajesh Kumar Singh and Aishwarya Nair

CHICAGO (Reuters) -Delta Air Lines on Thursday posted weaker-than-expected earnings in the first quarter, hit by a severe winter storm that drove up operational expenses for the carrier.

Shares of the company fell 1.24%, even as Delta forecast a strong profit outlook for the current quarter, boosted by a rise in transatlantic travel.

Chief Executive Ed Bastian, in an interview with Reuters, said bad weather and fuel price volatility affected the company’s performance in the quarter ended March. Delta in February canceled 246 flights due to the storm.

Non-fuel operating costs in the first quarter exceeded the company’s estimates, while fuel bills also remained inflated, about 30% higher than in 2019.

CEO Bastian said on a post earnings call that Delta expects to bring down non-fuel costs in the second half of the year. The costs in the current quarter are projected to rise between 1% and 3% from a year earlier.

Rivals American Airlines (NASDAQ:) and United Airlines, which are yet to report quarterly earnings, have also signaled a hit from higher costs.

The “biggest concern” for Delta, however, was cost pressures from Air Traffic Control (ATC) under-staffing, said Seaport Research analyst Daniel McKenzie.

Delta said it was working with the Federal Aviation Administration (FAA) to ensure appropriate staffing and remains confident about summer demand, with 75% of its international flights already booked for summer travel.

The airline is in fact doubling down on more profitable premium travel, after premium cabin revenue grew faster than the main cabin in the first quarter.

“Consumers are anxious to travel,” Bastian said, adding that travelers were booking trips well in advance.

Travel demand in the United States is currently strong but rising interest rates, persistently high inflation, mounting job losses and a turmoil in the banking industry have cast a shadow over consumer spending.

Bastian downplayed these concerns. He said Delta recorded the 10 highest sales days in its history last month and was able to protect its pricing power despite adding capacity.

For the June quarter, Delta expects its revenue to rise 15% to 17% from a year earlier on capacity growth of 17%.

“We’re growing supply at that level and not seeing a deterioration in the overall revenue,” Bastian said. “It’s unusual in our industry.”

Delta expects an adjusted profit of $2.00 to $2.25 per share in the second quarter, with an operating margin of 14% to 16%. Analysts, in comparison, estimated a profit of $1.66 per share.

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