Delta optimistic that pandemic is receding as travel demand — and fares — come roaring back

Delta Air Lines is looking past the COVID-19 pandemic — and its first-quarter earnings show why.

Once the impact of the COVID-19 omicron variant receded in the U.S. in February, demand took off for the airline — big-time — leading to a blockbuster March. The quarter was "a tale of two halves," Delta President Glen Hauenstein said during the airline's quarterly earnings call with Wall Street analysts and reporters on Wednesday morning.

That month was the best cash sales month in the airline's history, beating the previous record from the spring of 2019 — despite offering 10% fewer seats, Delta CEO Ed Bastian said. In all, the airline beat Wall Street expectations, with an adjusted loss of $1.23 per share against analyst expectations of $1.30 per share.

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A big part of the Atlanta-based airline's March recovery was fueled by an increase in business travel, which has been much slower to return compared to leisure travel. That month, domestic corporate sales were 70% of 2019, while international corporate sales were 50% recovered.

"Domestic travel restrictions have been completely removed for all of our top corporate accounts," Hauenstein said.

The March momentum has continued into April, despite an uptick in COVID cases fueled by the omicron BA.2 subvariant, Hauenstein said.

Still, the existing momentum was cause for more optimism on the call.

"The one that we're really excited about right now is trans-Atlantic business, which for the first time last week crossed domestic restoration in terms of volume," he said.

Domestic premium revenue was fully recovered in March compared to 2019 — so if you hold Delta Medallion status, good luck getting a complimentary upgrade.

Twice on the call, Bastian made it clear that he views the pandemic as receding.

"As COVID shifts from a pandemic to a manageable seasonal virus, there are clear signs of pent-up demand for travel and experiences as consumers' spending shifts from goods to services and experiences," he said.

Delta also said Wednesday that effective this month, unvaccinated employees would no longer have to pay a $200 per month insurance penalty.

"Any employee that hasn't been vaccinated will not be paying extra insurance costs going forward," Bastian said.

Delta — along with every other major U.S. airline — has called for the U.S. transportation mask mandate to be ended. News broke during the earnings call that the mandate, which was set to expire on Monday, would be extended until May 3.

But another pandemic era requirement could be on its way out.

Delta executives said they believe that the Centers for Disease Control and Prevention's pre-departure testing mandate, which has hampered some international demand, was on the verge of being lifted.

"We are getting a strong indication that the pre-departure testing will be phased out in the near future, which, of course, is quite encouraging," Chief Legal Officer Peter Carter said.

However, Delta's optimistic outlook about the state of the pandemic — and its second-quarter outlook — will offer little relief for consumers feeling stung by sky-high airfares. The airline said travelers continue to purchase expensive fares as seats — especially domestic ones — fill up faster than they did before the pandemic, thanks to pent-up demand.

More: CDC to extend mask mandate for another 2 weeks

"We haven't seen a lot of resistance to the price points that we have in market, and our goal is to have reasonable price points in market up to day of departure," Hauenstein said, noting that the company believes its customers are willing to pay more for a higher level of service compared to its competitors.

The airline also did not seem particularly concerned about the higher price of fuel, forecasting a 12% to 14% operating profit margin for the second quarter despite fuel prices rising 50% compared to the same period in 2019.

Delta has hired 14,000 workers since the start of 2021, though is still slightly smaller than it was before the pandemic. Travelers and investors shouldn't worry about staffing shortages at the airline, which have plagued competitors, Bastian said, because the airline's strategy is to focus on profitability rather than restoring capacity. Some airlines have been running an operation larger than they are able to manage with current staffing.

"We will remain nimble on capacity for the second half of the year and continue to prioritize sustained profitability," he said.

For the second quarter, the airline plans to have 84% of the capacity that was in place during the second quarter of 2019.

As has happened many times during the pandemic, the airline also acknowledged that the epidemiological and economic situation could change.

"Our crystal ball is only as good as the next 60 to 90 days," Hauenstein said.