Delta Air Lines Exec Says Demand Has Never Recovered So Quickly

Delta Air Lines says demand is so strong that it can easily recover the recent dramatic run-up in the cost of fuel.

“We are very very confident of our ability to recover over 100% of the fuel price run-up,” Delta President Glen Hauenstein said Tuesday at a JP Morgan investor conference. A week ago, on Tuesday, March 8, Delta recorded the highest sales day in its history, he noted.

Delta’s recovery is being enabled by strong demand as well as the characteristics of its customer base, Hauenstein said.

In mid-morning trading following the presentation, Delta shares were up 8% tp $34.68.

“We’re seeing an increase in demand that is really unparalleled,” he said. “We all knew there was pent up demand in the industry, (but) I have never and I don’t think our revenue management team has ever seen demand turn on so quickly.”

Delta expects to pay an average of $2.80 per gallon for jet fuel in the current quarter. Given the rapid run-up, “We need to recapture between $15 and $20 on an average ticket value of $200,” Hauenstein sad. “We feel very confident that we will capture it in the second quarter.

It typically takes 60 days to recover the cost of a fuel price runup, Hauenstein said.

Responding to a question, he said Delta is better positioned than its low-cost competitors.

“We look at our target audience, the demographics, and we see the increase we have to pass through as something very achievable without demand destruction,” he said.

By contrast, for a low cost/low fare competitor, “The increase as a percent of the fare itself is much more dramatic for them then it was for us,” he said. Their target audience is probably more pressured than our target customer.”

For most carriers, an unexpected trend during the pandemic has been higher demand for premium products. For Delta, unit revenue for premium products has been running about ten points ahead of unit revenue in the main cabin.

“We had originally thought that people would only pay if their company was paying for these products and services, (but) there is a wide appetite from consumers who want to sit in the better products and services,” Hauenstein said.

He noted that, “Of the three big U.S. carriers, we have the highest average gauge by a wide margin and we are continuing to expand that,” meaning that Delta’s higher proportion of bigger, widebody aircraft provides more opportunity to install premium seats.

Last week, about 200 Delta pilots, members of the Delta chapter of the Air Line Pilots Association, demonstrated at Atlanta Hartsfield-Jackson International Airport, protesting the company’s scheduling practices. “The off-duty pilots picketed with signs reading ‘fatiguing schedules = poor reliability,’” according to Atlanta TV station WXIA.

“We’ve called on our pilots to fly more than they’ve liked to fly,” Hauenstein said. “We are committed to bring those levels down. We don’t want our pilots flying more than they feel they want to.

“Maybe even this fall, (we can) give them the amount of time off” that they want, Hauenstein said. Delta is hiring 200 pilots a month.

Delta has restored 87% of its 2019 capacity and will be able to return to 100% in September if it chooses to. Hauenstein also said that business travel is recovering, with small business coming back more quickly than big business. As for international, even Asia, the slowest region to recover, is showing some promise: Hauenstein said Delta will benefit when key Asian partner Korean Air is able to resume a more normal level of service next month.

South Korean has said it will welcome back international travelers, with no quarantine for most vaccinated arrivals, on April 1.

Looking back, Hauenstein recalled that during the first quarter of 2020, before the impact of the pandemic began to be felt, Delta was optimistic. Airline veterans saw prosperity after surviving the impact of the Sept. 11 terrorist attacks and a recession. “The first two months exceeded 2019,” Hauenstein said. “We were feeling very confident. We felt ‘we’ve seen it all, they can’t throw us a curveball.

“We found out what could possibly happen,” he said. “It was very humbling for all of us. We’ve really had the two most challenging years in our history.”

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