Holidays Help Boost American and Delta Profits

Both airlines said they expect the good times to continue as the new year begins.

Delta Air Lines said Friday that it earned $828 million in the fourth quarter, and that consumers are still snapping up flights and making other purchases with their airline-branded credit cards.

The Atlanta-based airline said momentum has carried over into the new year, as the travel industry continues to recover from the worst of the pandemic.

Delta's report came a day after American Airlines delivered a rosy update on its fourth quarter, saying that rising revenue would push earnings per share to nearly double the amount that Wall Street expected.

Both carriers and other U.S. airlines have been helped by strong demand for travel and a limited number of flights — a combination that has pushed fares higher.

Airlines say that a shortage of pilots, especially at regional feeder airlines, has curtailed their ability to operate more flights. However, Delta expects to be operating at around full prepandemic levels by this summer.

Investors are starting to worry that as airlines become convinced that the travel recovery is permanent, they will add flights in a bid to grab a bigger share of the market and wind up driving fares lower. That is good for travelers but bad for airline investors, and it has happened many times in the industry.

It is also unclear whether consumers will continue to spend freely on travel while facing higher prices for food, housing and other essentials. Even though inflation eased in December for the sixth straight month, it remained at a staggering 6.5 percent compared with a year earlier.

For now, though, most airline executives remain upbeat, as do analysts who track the industry.

Bank of America analyst Andrew Didora said he expects Delta to boost free cash-flow generation in 2023, allowing it to pay down debt more effectively than American or United. He said Delta is likely to increase its share of the U.S. air-travel market as it increases flights at its most important airports: Atlanta, Detroit, Minneapolis and Salt Lake City.

Delta's $828 million fourth-quarter profit compared with $1.1 billion in the same quarter of 2019, the last one before the pandemic devastated the U.S. airline business. Excluding some items, Delta said its adjusted profit worked out to $1.48 per share, 16 cents better than Wall Street predicted, according to a FactSet survey of analysts. Revenue rose to more than $13.4 billion, again beating expectations.

Delta also took in $1.5 billion from spending by customers using their airline-branded American Express credit cards. That was up 40 percent from three years ago.

Delta predicted that first-quarter earnings will be 15 to 40 cents per share, below the 59 cents forecast by analysts in the FactSet survey. Delta stood by a recent forecast of full-year earnings between $5 and $6 per share.

American Airlines raised its forecast of fourth-quarter revenue and profit Thursday, boosted by higher fares and full planes, and capped off with a busy holiday travel period.

American earned $1.12 to $1.17 per share in the fourth quarter, nearly double its previous forecast. Revenue was 16 percent to 17 percent above the same quarter in 2019, before the pandemic. Shares of the Fort Worth, Texas, company jumped 9.7 percent in its best one-day showing since July. It has surged nearly 37 percent since Dec. 28.

A severe winter storm affected all U.S. airlines before Christmas, but American and most others were able to recover quickly; Southwest was not. Southwest canceled more than 16,000 flights in the last 10 days of December, or 37.5 percent of its schedule, leaving more than 1 million passengers scrambling for new flights including on other airlines.

"There was certainly some benefit from reaccommodating probably a relatively small amount of Southwest passengers... but overall the [new, higher forecast] was just broad-based strength across the quarter," American's CFO Devon May said in an interview.

Officials said any gain from Southwest's meltdown was likely offset by American canceling more than 800 flights, or 2.6 percent of its schedule, in late December, according to FlightAware figures.

American said revenue from each seat per mile rose 24 percent over the fourth quarter of 2021, an even sharper rise than it had previously forecast.

Raymond James airline analyst Savanthi Syth said she had expected American to raise its guidance because it appeared to suffer fewer ill effects from the winter storm in late December, but the update topped those expectations, too.