Delta seldom disappoints these days — not investors, who now have seen the world’s biggest airline report better-than-expected quarterly profits for nearly three full years, nor passengers, especially those willing to pay a little more for the higher levels and comfort and service quality that Delta increasingly aims to provide.
And the carrier didn’t disappoint again today with its fourth quarter and year-end 2019 profits report. The Atlanta-based carrier that now sits atop the global industry reported a net profit of $1.1 billion in the fourth quarter, an 8% improvement over the fourth quarter of 2018. The company’s operating profit soared 28% higher, to $1.4 billion in the fourth quarter. Per share earnings hit $1.71, up from $1.50 a share in 2018’s fourth quarter and 22% higher than analysts’ consensus estimate of $1.40.
Delta planes lined up at gates at Atlanta’s Hartsfield-Jackson International Airport in Atlanta. … [+]
For all of 2019 Delta reported a net profit of $4.8 billion, up 21% from 2018, and a total operating profit of $6.6 billion, up 26%. Each share of Delta’s stock earned $7.32 in 2019 vs. $5.69 in 2018.
CEO Ed Bastian hailed the company’s annual performance as “the best in Delta’s history operationally, financially and for our customers” and praised the airline’s more than 80,000 workers for their “commitment to bringing best-in-class travel experiences to our 200 million customers.” The airline will pay out $1.6 billion in 2019 profit sharing to those workers in mid-February.
The company’s fourth-quarter performance clearly was impacted positively by both somewhat lower fuel prices in the period and particularly strong passenger demand for air travel (this despite the shorter-than-normal holiday travel shopping period between Thanksgiving and Christmas). But the larger and, arguably more profound and long-lasting impact on Delta’s fourth quarter and full-year 2019 financial performance was the carrier’s ability to get a growing percentage of its passengers to pay above average fare prices in order to enjoy more comfortable seats and/or to obtain enhanced service quality services.
Way more than any other U.S. carrier Delta appears to have figured out how to convince existing Delta loyalists to pay a little extra to get better seats and access higher quality services in exchange for an markedly more satisfying travel experience. And, though the data at this point are hard to pin down, it appears that Delta also is succeeding in attracting higher fare-paying business travelers and those leisure travelers who are less price sensitive to switch their carrier preference to Delta from rival carriers.
“What we’re seeing in leisure is a separation of people who want quality and who are willing to pay a little more for comfort,” Bastian said in answer to a question during a conference call this morning with analysts and reporters. “We’re seeing an increase in yield (cents paid per mile flown) on leisure (travel). That’s a way to look at it.”
The trend is not strong enough yet, he indicated, to justify further shrinking the size of Delta’s Spartan basic economy sections aboard its airplanes. But the carrier increasingly is seeing strong and growing demand for its “comfort plus” seats featuring more space and additional services. And that’s what’s driving Delta’s seeming separation from the pack of other U.S. airlines.
Delta did benefit in the fourth quarter and most of 2019 from the fact that it does not operate Boeing 737 MAX aircraft, which have been grounded worldwide since March following two deadly crashes that largely have been blamed on design changes that significantly changed the handling characteristics of the MAX vis-à-vis earlier versions of the 737. Pilots for the most part weren’t trained to handle those differences, a factor that contributed greatly to both crashes. While Delta doesn’t not fly the MAX competitors American, United and Southwest all do and their growth plans, revenue totals and costs were all hurt by the grounding, which at this point has no announced end date.
Bastian acknowledged that benefit but downplayed the size of its impact on Delta’s financial performance. Instead, he focused on Delta’s ability to improve its brand identity as the primary driver behind that performance.
Delta is the first U.S. carrier to report its fourth quarter of full-year 2019 results. United and JetBlue are expected to report their fourth quarter and year-end earnings on Jan. 22. The next day American and Southwest are scheduled to report their earnings. Alaska, which last year absorbed the operations of the former Virgin America, reports on Jan. 28.
Delta’s shares jumped nearly 4% in morning trading, to $61.80 a share at 12:25 pm ET. The company’s 12-month trading high of $63.44 a share set back in March of 2019 now is once again within sight.
Delta’s report also gave a boost to other carriers’ shares. In mid-day trading American’s shares were up 1.2% to $21.71; United’s shares were up 1.7% to $88.36; Southwest was up 1% at $54.53; JetBlue rose modestly (0.1%) to $18.58; and Alaska Airlines’ shares gained 1.4% to $66.75. Overall the market was mixed with the Dow Jones Index showing up a bit (about 126 points, or 0.44%) in mid-day trading at 29,033, while the NASDAQ was off slightly (down 0.16% at 106.92).
