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Hm…Maybe Delta Knows What It’s Doing

We’re in airline earnings season, and we’ve seen the first few airlines post what most newspapers are reporting as giant losses.  But look beyond those headlines of billions of dollars of red ink and you’ll see that most of those losses are one-time non-cash charges, and that Delta actually posted a nice little $137 million profit (excluding 1-time items) even with fuel costing $1 billion more in the quarter than last year.  Continental and American posted small losses.

Delta’s increased fares, new fees and shift to international travel all seemed to make a positive impact.  The 2nd quarter is traditionally their best, so we may not be seeing profits again any time soon.  But I think it shows that the industry re-structuring is beginning to work.  Sure, oil prices need to come down and from everyone says the carriers could stand to get rid of a bunch more seats, but it would appear that, for the first time in a while, the airlines may be headed in the right direction.  Nice to see some not-so-horrible news for a change.

(Note: Yes, I know that all of the improvements have come on the backs of consumers, who are paying for higher fares and fees for everything.  Get over it, that’s how it’s going to be.  You’re free to fly Southwest.)

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  1. I will gladly pay the extra $ to fly rather than drive cross country with my kids for 18+ hrs. when I could fly for 2-4 hrs. to reach the same destination. I’ll pay for convenience and sanity reasons!

    rachael@reviewsbyrachael.com

  2. You mocked me for this a while ago, but I’ll throw it out again: based on my limited understanding of the DOT filings, it looks as if Delta actually has historically made money on domestic flights. I suspect that has to do with small southeastern captive markets than anything else.

  3. I mocked you? That wasn’t very nice :)

  4. yes, I had to go to therapy for a few days.

    Seriously, though, I was trying to make a point that cuts by businesses in travel spending are hurting as much as the increase in costs; however, a friend over the weekend told me his very large consulting firm hasn’t cut back on travel yet. Ayything over $450 needs to be approved, but for the bulk of domestic travel that is not going to kick in.

  5. There’s something “funny” about Delta’s results, especially since there’s obviously “softening” in the int’l market right now (CO’s Kellner talked about it in the conference call — blaming the obscene value of the Euro). Since Delta’s strategy is to fly a lot of transatlantic routes that nobody (including CO) think could be profitable, I’m skeptical they’ve found a gold mine. I suspect it has something to do with the restructuring — US also had surprisingly wonderful results after AWA bought them in Chap. 11. Delta also doesn’t seem as cheap (aka “cost efficient”) as some other airlines, which also makes me skeptical of their results.

    But only time will tell whether my skepticism is justified. I would just look for them to underperform compared to their peers next year.

  6. I do agree with one thing IAHPHX said – Delta could be in for a world of hurt during the slower fall travel period to Europe. High fuel costs + weak dollar + fewer people flying to Lyon = possible disaster. The Europe strategy may not be the savior for Delta. However, their African routes coupled with some of the newer more obscure routes (like Guyana) where VFR (Visiting Friends and Relatives) traffic can be profitable, may keep it from being as awful as we think.

  7. I understand the passengers that are filling Europe bound planes are… Europeans making good use of their Euro vs Dollar return. And Delta is not stopping there. Considering Delta’s antitrust benefits with other carriers, including the biggest carrier in Europe, Air France-KLM, I bet they have all these airlines have their clocks well synchronized to tap markets that their competitors currently can’t.

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