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Delta looks at faster hiring to meet 'surprise' demand, costs rise

Stock Markets Oct 10, 2019 11:50AM ET
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© Reuters. A Delta Air Lines flight is pushed put of its gate at the airport in Salt Lake City
 
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By Tracy Rucinski

CHICAGO (Reuters) - Delta Air Lines (N:DAL) hopes to speed up the hiring of pilots, flight attendants, reservation and airport staff after "surprise" demand growth fueled better-than-expected third-quarter profit, Chief Executive Ed Bastian told Reuters.

However, that growth is driving up expenses, a concern for investors. Shares of Delta, which have outperformed major airline peers this year, sank 3.4% to $52.06, after earlier dropping to $51.07, its lowest since March 29.

Delta paid its pilots record overtime this summer as the carrier flew a heavy schedule, in part because of demand tapped from competitors that canceled flights due to the grounding of Boeing (NYSE:BA) 737 MAX planes, Reuters reported on Wednesday.

"The size of the demand surprised us," Bastian said in a telephone interview.

Atlanta-based Delta does not own the 737 MAX, which has been grounded since March after two fatal crashes. As a result, it is able to increase flight capacity at a time when growth at MAX carriers like Southwest Airlines (N:LUV) and American Airlines (O:AAL) remains at a standstill.

Delta is forecasting capacity growth of around 4.5% in the fourth quarter, though costs per available seat mile, excluding fuel, are also seen rising between 4% and 5% in the period.

Costs, excluding fuel, rose 2.4% in the third quarter due to higher employee wages, demand volume and weather incidents, Delta said. "Given the high volume that we've experienced and the demand for the product, it's created a need for additional resources across all of our work groups (...) and getting this staffing in sooner," Bastian said.

Delta expects to retain the market share it picked up this summer, he told investors on a conference call. New hires will help meet larger travel volumes and keep cost inflation at around 2% over the longer term.Net income climbed 13.1% to $1.5 billion in the quarter to Sept. 30 on total adjusted revenue of $12.56 billion. Adjusted earnings per share reached $2.32, beating analysts' expectations for profit of $2.26, according to IBES data from Refinitiv. Analysts were forecasting revenue of $12.6 billion.

For the fourth quarter, Delta expects earnings per share in the $1.20 to $1.50 range, below analyst estimates for $1.51. The airline, the first of its peers to report quarterly earnings, is among the U.S. airlines hardest hit by a new 10% tariff on European-made Airbus (PA:AIR) planes. Bastian said the tariff is not expected to have an impact this year because its remaining Airbus deliveries will come from the European planemaker's plant in Mobile, Alabama, which is exempt from the levy. Delta is "looking at all of our options to make sure that we don't incur any increases to our already negotiated prices with Airbus" for deliveries due next year, Bastian said. Last month, Delta pledged to buy 14 more A350s, which are assembled in Europe, as part of a strategy to grow in Latin America through the acquisition of a 20% stake in LATAM Airlines Group. The airline is also still targeting an investment of around 100 million euro ($109.80 million) in the rescue of Italian flagship carrier Alitalia, Bastian said.

Delta looks at faster hiring to meet 'surprise' demand, costs rise
 

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