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Published -July 14th, 2023 @ 11:35 AM (GMT+2)

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Despite ongoing capacity constraints, Delta Air Lines (NYSE:DAL) is seeing a surge in travel demand, driving record-breaking revenue and earnings. Ed Bastian, Delta's CEO, confirmed on Thursday that consumer travel has become a top priority, despite escalating living costs. However, due to persistent shortages of aircraft, spare parts, and labor, the airlines need help to keep up with the demand. This inability is expected to prolong the post-pandemic travel boom for an extended period.

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Delta Revises Profit Outlook Amid Record Earnings
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Delta Air Lines recently revised its full-year profit outlook for the second time within a month, posting the highest quarterly earnings in its history. The Atlanta-based airline now anticipates adjusted earnings to reach between $6 and $7 per share this year, up from the previous projection of $5-$6. Despite this impressive performance, Delta's shares closed down 0.5% at $47.71.

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Even as the airline fares seem to have peaked, with U.S. inflation data indicating a third consecutive monthly decline in fares, Bastian urges the public to read only a little into this. This drop comes in comparison to a time last year when travel had just resumed post-pandemic, and supply was limited, leading to a sudden surge in ticket prices. According to Bastian, these dramatic hikes were unsustainable and have since normalized.

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Delta Retains Pricing Power Despite Increased Capacity
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Delta's Q2 earnings report manifests that airlines still possess pricing power. Despite a 17% jump in capacity, Delta's total revenue per seat mile (TRASM), a measure of pricing power, rose 1% from last year. Despite a high statistical base possibly impacting TRASM in H2, it is expected to remain strong.

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Delta's future bookings, reflected by its air traffic liability, stood at $10.4 billion at the end of the April-June quarter, marking a $500 million rise from last year. Despite a sluggish recovery in corporate travel, Bastian states that hybrid work arrangements have led to a 50% increase in personal trips compared to the pre-pandemic period.

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Delta Retains Pricing Power
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In the Q2 results, international travel and premium seats demand stood out, bolstered by a 22% drop in Delta's fuel costs. CEO Bastian is optimistic about continuing these trends, calling the present period the "mid-innings" of travel growth.

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Delta Forecasts Promising Q3 Earnings
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For Q3, Delta forecasts earnings between $2.20 and $2.50 per share, exceeding Wall Street's expectation of $2.07. The carrier also predicts a 16% increase in capacity and a 14% revenue rise from a year earlier.

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Delta's Q2 report, which beat Wall Street's consensus estimates with adjusted earnings per share at $2.68 and adjusted revenue at $14.61 billion, sets a hopeful tone for the rest of the year. Delta's net quarterly income was $1.83 billion, up from $735 million a year ago. Total revenue of $15.58 billion was up 13% from the previous year.

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