Delta earnings fall far short of expectations because of high fuel costs and service problems

The company reported Wednesday that it earned $735 million in the second quarter. Analysts surveyed by Refinitiv had expected earnings of $1.1 billion for the company.

Average fuel costs for Delta rose to $3.82 a gallon, up 37% from the first quarter and up 82% from the final quarter of 2021. Delta had previously told investors it expected to pay between $3.20 and $3.35 in the second quarter. It now expects to pay slightly less in the third quarter, with fuel costing between $3.45 and $3.60 a gallon.

But the other big problem was a jump in non-fuel expenses. Some of that was related to the costs of service problems that Delta and other airlines encountered in the quarter. It’s non-fuel costs were up 22% when adjusted for capacity, compared to what it paid in the same quarter of 2019, ahead of the pandemic.

A shortage of staff led to a surge in canceled flights, especially during holiday weekends. That has led to higher labor expenses and other costs. Delta raised base pay for many employees 4% in May. While it said it expects costs to improve later this year, it won’t see those improvements during the rest of this summer travel season.

“In the near-term, as we prioritize restoring reliability, our full year non-fuel unit cost will remain higher than our previous plan,” said said CFO Dan Janki.

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The good news for the airline, but bad news for customers, is that unit passenger revenue, a measure of air fares, was up 17% compared to the second quarter of 2019. But the airline is still flying 18% less capacity than it did in that earlier period, so total passenger revenue was slightly lower than three years ago.

Total revenue of $13.8 billion was $250 million more than forecast, and was slightly higher than the same quarter of 2019, helped by record revenue from its American Express co-branded credit card.

Shares of Delta (DAL) fell 2% in premarket trading. Delta is the first US airline to report second-quarter results, so shares of rivals American (AAL), United (UAL) and Southwest (LUV) were also slightly lower on the Delta report.