NEW YORK — Lower airfares and rising salaries are putting a squeeze on Delta Air Lines.
Luckily for the airline, the price of jet fuel remains cheap and the Atlanta-based carrier was able to report Thursday a third-quarter profit of $1.26 billion, down 4 per cent from the same period last year.
Summer is typically the strongest period for U.S. airlines and Delta’s earnings could signal an end of an extraordinary run of record profits for the industry. The issue is that this era of cheap fuel isn’t going to last forever.
Delta paid $1.50 for each gallon of jet fuel in the quarter, down from $1.89 during the same period last year. Every penny per gallon saved adds up with the airline consuming 1.1 billion gallons of fuel during the quarter. Delta warned in its earnings release that, for the first time in several years, year-over-year fuel prices will be higher in the next quarter.
At the same time, the industry is struggling with too many seats in the sky, lower airfares and increased costs for most non-fuel expenses including salaries and payments for new aircraft.
The amount of money Delta collected for each mile that each available seat flew plunged 6.8 per cent during the three months that ended Sept. 30.
The average airfare for each 1,000 miles passengers flew during the summer was $153.80, down 5.3 per cent from the $162.40 Delta collected during the same period last year.
The number of available seats and the miles they flew increased 1.5 per cent while the actual flying by paying customers fell 0.2 per cent. A year ago, 86.8 per cent of Delta’s seats were filled with paying passengers during the peak July, August and September quarter. That fell this year to 85.4 per cent.
Delta, the world’s second-largest airline by passenger traffic, said it plans to slow its growth to 1 per cent in the next quarter and into 2017 so it can try to raise airfares. It hopes that its industry-leading on-time performance will convince travellers — especially higher-paying business fliers — to book with Delta and possibly pay more to do so.
While Delta is taking in less cash, it’s also paying out more.
The number of full-time equivalent employees rose 1.3 per cent to 84,084. Salaries and benefits jumped 8 per cent to $2.5 billion. And that doesn’t factor in a proposed new pilot contract which would drive up Delta’s wage expenses more.
Delta also continued to replace its aging fleet of jets, leading to a 14-per cent increase in its aircraft payments. Its fleet climbed from 925 jets to 960 in the past year. The new jets also have more seats than those they are replacing, making it even harder for Delta to easily pull down its capacity and increase airfares.
Overall, Delta’s revenue for the quarter fell 6 per cent to $10.48 billion from $11.11 billion last year and fell short of Wall Street forecasts. Four analysts surveyed by Zacks Investment Research expected $10.59 billion. The airline said $100 million of that shortfall was a result of an August computer outage that grounded its planes around the globe and led to more than 2,300 flight cancellations. Another $70 million in the gap came because of gains last year from currencies bets on the Japanese Yen.