Delta expects jet fuel cost pressures in 4Q

Delta expects rising fuel costs to hurt its business in the final three months of the year, after returning to profitability in the third quarter for the first time since the Covid-19 pandemic grounded air travel demand in early 2020.

Rising fuel prices will "pressure" the airline's ability to remain profitable for the fourth quarter, said chief executive Ed Bastian, with costs expected to rise to between $2.25-$2.40/USG. This is based on 11 October prices that included Brent crude at $83/bl and crack spreads of around $13.

Delta paid an average of $1.97/USG for jet fuel in the third quarter, an increase of 37pc over the same quarter last year and up by 3pc from third quarter 2019. The carrier paid $1.552bn for 789mn USG of jet fuel in the quarter, down 31pc from the third quarter of 2019.

Delta's 185,000 b/d Trainer refinery in Pennsylvania posted a profit in the third quarter for the first time since the end of 2019. More information on the refinery's performance will be released later today.

Some business rebound, more freight

Delta's corporate volumes from business travelers improved in July but paused at approximately 40pc recovered for the third quarter 2021 compared to the same quarter in 2019 as corporations delayed the reopening of offices due to the Covid-19 Delta variant. The return of business travel has been eagerly anticipated by US airlines since corporate clients usually provide carriers with some constancy in an otherwise cyclical demand environment. The carrier began to see domestic corporate volumes improve exiting September, and that improvement continued in October, it said.

Pressed for traditional recreational travel revenues amid the most recent surge in infections, Delta continued to emphasize repurposing aircraft for cargo transport in the third quarter. Cargo revenue increased to $262mn, up 5pc from the same quarter last year and 39pc compared to two years ago.

Delta expects to recapture demand at 80pc of 2019 levels in the fourth quarter in the face of "robust" holiday demand, after operating at 71pc of 2019 levels in the third quarter.

The airline has pressed ahead with hiring efforts as demand has come back in fits and starts this year, as it tries to stave off labor-related operational issues that plagued rivals like Southwest and Spirit. Delta has hired 8,000 employees thus far in 2021. It instituted a $200 surcharge to employees for forgoing vaccinations but has abstained from mandating vaccination like some of its rivals.

The airline posted a profit of $1.212bn in the third quarter, its first quarterly profit since the fourth quarter of 2019, but still down 19pc from the same quarter two years ago. The company's revenues were supported by $1.8bn from a US government payroll support program established in the wake of the pandemic.

By Dylan Chase