Delta CEO Says 60% Fuel Spike Didn't Dent Profits, Fares May Stay

Delta CEO Ed Bastian said he was surprised that the airline's profits held up despite a 60% jump in fuel prices, as demand for tickets stayed resilient. In an interview with CNBC Friday, Bastian said higher ticket prices could be here to stay even if oil prices ease, because travelers keep buying. That is the core of the message: the fare increases that began as a fuel-cost response may have become a durable pricing reset.

The numbers behind that claim are specific. In July, after Delta's second-quarter results, Bastian told CNBC that Delta was passing along 60% of its higher fuel costs to consumers and expected that to reach close to 100% in the third quarter. He said the 60% increase in its jet fuel costs in the third quarter was a $1.6 billion increase. "To not dent those profits, to me is incredible," Bastian said. He added: "In past cycles, past shocks, if we saw a 60% increase in fuel prices, we'd be flat on our back."

Delta's third-quarter report gives the claim financial shape. The company last week reported $17.6 billion in adjusted revenue for the third quarter, a 16% year-over-year rise but just short of analysts' $17.67 billion estimate. While Delta spent an adjusted 62% more than the same time last year in jet fuel, its revenue per seat mile, the measure of how much money an airline earns for each seat it flies one mile, went up 15%, reflecting higher fares and strong demand. On the company's third-quarter earnings call, Bastian credited consumers for helping the company maintain its profits despite these price increases.

Bastian's argument on the call was that the market has accepted the new fare levels. "Fuel has been the impetus for the industry to move quickly to adjust the pricing environment. But given the fact that the market has accepted these price points," he said, and given that the company still views airfare as reasonably affordable, Delta's position is very sustainable. He also looked past the current fuel spike: "I think we're going to be fine as you look forward. Hopefully, we will see fuel recede into the next year at some point, and that's when I think you'll see the real earnings power of this franchise be amplified," he said on the earnings call.

The fuel backdrop explains why this matters beyond Delta. Oil prices surged this year due to the war in Iran, which has crippled transit through the Strait of Hormuz, through which 20% of the world's oil flowed before the war. The price of Brent crude oil on Monday stood at $108, up more than 70% from a year ago. Airlines are particularly susceptible to increases in oil prices. After labor, fuel costs are airline companies' biggest expense, making up about 21% of their operating costs as of earlier this year, according to Airlines for America, a trade association and lobbying group. Because jet fuel prices generally move with oil prices, they rise in tandem, and jet fuel prices are already up more than 100% compared to a year ago, according to the International Air Transport Association. U.S. Gulf Coast jet fuel cost $4.34 a gallon on Thursday, almost double the $2.19 of a year earlier, according to CNBC.

There is a structural difference between U.S. and European carriers. Unlike their European counterparts, U.S.-based airlines also don't hedge against rising oil prices, meaning increases often get passed on to the customer. Delta, for its part, bought an oil refinery more than 10 years ago through a subsidiary, which helps offset fuel costs. That refinery does not make Delta immune, but it gives the airline a partial internal hedge that most U.S. peers lack.

The demand side is holding across the industry. Delta is the first major U.S. airline to report third-quarter earnings, but other CEOs have also noted airlines' sales resilience in the face of rising fuel costs. Southwest Airlines CEO Bob Jordan told CNBC in July that "Despite high fuel and high prices, we're seeing really strong demand." In prepared remarks during American Airlines' second-quarter earnings call, CEO Robert Isom said, "Consumer spending remains resilient, underpinned by a healthy labor market and a sustained preference for travel relative to other discretionary categories." The continued strength in the airline sector comes as the average price for domestic trips hit $445.26 in the second quarter, according to the Bureau of Transportation Statistics. Airline ticket prices increased about 23% year over year, according to the U.S. Travel Association.

Higher fares have not fully protected Delta from rising fuel costs. The airline last week cut its full-year profit outlook to between $5.10 and $5.60 per share, down from its previous forecast of $6.50 to $7.50. It also missed Wall Street's earnings estimate for the first time in two years. That tension is the strategic test for every airline board and CFO: if demand stays strong, fare increases can stick and become margin expansion once fuel recedes; if demand cracks, carriers that passed fuel costs to travelers may find they have less room to cut prices without damaging revenue. Bastian's bet is that the market has already accepted the higher price points, and that the next earnings cycle will show whether that acceptance is a durable franchise advantage or a temporary gift from resilient consumers.