Delta does not expect ticket prices to decline, even if oil and jet fuel prices fall, CEO Ed Bastian said during the airline’s latest earnings call.
The core of his argument is that the airline business has structurally changed to an extent that, although fuel remains more expensive since these past months, such is the case with nearly everything else airlines pay for, including labor, airport fees, technology, and the planes themselves.
All these costs combined have made it a lot harder for budget carriers to survive through deep discounts.
Bastian noted that these challenges notwithstanding, the industry has been making up for this year’s higher fuel costs faster than in any recent cycle. There’s also the fact that most carriers were already struggling to turn a real profit even before the recent fuel spike due to the whole situation with Iran.
In his framing, fares have actually lagged behind inflation since the pandemic, running about 10 to 15 points behind. “We believe that current revenue momentum should remain sustainable even if fuel prices moderate,” he explained.
The American business executive was especially direct about the low-cost segment of the market, estimating that fares in the segment still need to climb another 5% just to break even at current fuel prices.
That’s why chasing growth in such a market isn’t worth it. In his view, the smarter play would be to squeeze more revenue out of existing customers rather than fighting for market share.
For Delta, this has meant raising fares and leaning on other income sources, including its long-running credit card partnership with American Express. Wider industry data backs up the trend. According to the most recent Consumer Price Index (CPI) report, airline fares rose 2.7% from the previous month in May and were up 26.7% compared to a year prior.
Delta stock closed down 1.81% at $87.39 following the earnings release and Bastian’s comments.
Sources: Delta, AlphaStreet, Bureau of Transportation Statistics, Fox Business