Happy contrails ... Delta sees strong 2020 profit, revenue
Delta Air Lines, the most profitable U.S. carrier, expects profits and revenue to increase next year on sustained demand for air travel and stable prices for jet fuel.
The airline's top executive, however, warns that concern about the environmental impact of flying — including flight-shaming and the potential for higher taxes on emissions — is “the existential threat” to Delta's ability to keep growing.
"You see it happening in Europe, it's increasingly coming here to the U.S., you'll see it on a global scale," CEO Ed Bastian said Thursday. "We are seen in the world's eyes as somewhat of a dirty industry.”
During a meeting with analysts in Atlanta, Bastian said the airline industry has done a “terrible” job explaining how it is reducing emissions through the use of more fuel-efficient planes, and needs to more forcefully argue for the economic and other benefits of travel.
On Thursday, however, investors seemed more interested in Delta's short-term financial outlook. They bid up shares of Delta Air Lines Inc. by $1.89, or 3.4%, to $56.97 in midday trading.
The Atlanta-based airline said that 2020 adjusted earnings will be between $6.75 and $7.75 per share. The midpoint of that range is modestly higher than the $7.05 projected by industry analysts, according to a survey by FactSet.
Delta expects revenue to grow 4% to 6% over this year, above the 3.6% increase predicted by the analysts.
Bastian said strong spending by travelers boosting the airline now should spill into 2020.
“Holiday bookings look good, and bookings into the first quarter look strong," he said in an interview with The AP. “So the U.S. consumer is holding (up) well.”
However, many analysts believe fares will fall next year if and when regulators allow the grounded Boeing 737 Max to resume flying. American, Southwest and United would likely add new seats to the market with their Max jets, which have been grounded since March while Boeing works to fix problems that played a role in two deadly crashes overseas.
There are a number of other factors that could influence travel decisions, including political uncertainty with a general election in the U.S. next year.
“The last election cycle, in 2016, we did see spending slow down a little bit in certain spaces — some consumer spending as well as business spending,” Bastian said.
Delta expects to increase its passenger-carrying capacity by 3% to 4% next year — unchanged from earlier plans — with a chunk of that related to resuming flights to India.
Delta predicted a modest increase in costs. After a sustained increase between 2016 and 2018, the cost of jet fuel has remained stable this year. This summer, Delta increased spending on overtime to handle heavy traffic, and it is negotiating with pilots over a new contract that is certain to include pay raises.
The airline said this week that it plans to hire 1,300 pilots in 2020, although Bastian said most will replace those who are retiring or leaving the airline.
Delta also announced it will invest in privately held Wheels Up, which lets members use private planes at an hourly rate. Delta did not disclose the size of its investment or how much equity it will get in Wheels Up, which will have a fleet of 190 planes.
Delta has reported net income of more than $33 billion since the start of 2010 after losing $26 billion in the previous decade, which was marked by terror attacks using U.S. planes, two recessions and an oil-price shock.
In recent years, the airline has plowed some of those earnings into new aircraft that will be about 25% more fuel-efficient than the planes they will replace.
Aviation accounts for 2% to 3% of carbon emissions, but it is growing faster than most other sources. Airline executives including Air France CEO Anne Rigail have sounded alarms about flight-shaming. UBS said its survey in the U.S. and Europe found that one in five respondents claimed they had cut back on flying in the past year.
And Time just named 16-year-old Swedish climate activist Greta Thunberg its youngest Person of the Year for leading a movement that includes avoiding flying.
In response to criticism, airlines have stepped up carbon offsets — investing in projects to reduce climate-changing pollution — and flown a few flights with biofuels. But true breakthroughs, something like all-electric airliners, are years if not decades away.
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