Delta CEO apologizes for recent flight woes, pledges a better end to summer

Delta Air Lines on Wednesday posted a $735 million profit for the second quarter despite higher costs and operational problems in the spring and early summer.

Strong travel demand was enough to overcome rising fuel costs, allowing the airline to charge higher fares to offset the expenses.

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The results come at the end of a quarter in which Delta faced mounting criticism over increasing operational disruptions, including more than 4,000 canceled flights in May and June, and many more delays. The airline, which had the most cancellations over the Memorial Day and the Fathers Day and Juneteenth weekends, reduced its schedule for the remainder of the summer.

Operational challenges

During a conference call with investors on Wednesday, CEO Ed Bastian apologized to customers who were impacted by delays, cancellations and long customer service hold times in recent months.

"This quarter's operational performance has not been up to our industry-leading standard," he said.

"We pushed too hard," Bastian added on CNBC ahead of the investor call. "We've scaled back a bit."

Delta will slow its expansion plans, capping capacity at 83% to 85% of 2019 levels, Bastian said, to try and safeguard the operation as the airline continues to hire more staff and train new employees. The airline previously said that it would reduce its summer schedule by 100 daily flights to create more of a buffer.

Since implementing the cuts, the airline has seen a swift improvement, Bastian said.

"July is off to a very good start with a 99.2% completion factor through the first 11 days of the month, which is exactly on par with the same holiday period during 2019," Bastian said. "Over the last seven days of this period, we've had only 25 cancellations worldwide on over 30,000 departures."

About 16% of the airline's flights during the period were delayed 15 minutes or longer, Bastian said, down from the previous months.

According to Bastian, the airline has made some improvements in baggage handling since the spring, particularly on domestic flights. As lost bags pile up in European hubs, however, Bastian said the airline was continuing to have trouble connecting passengers with their luggage.

"It tends to be more on the European side, where the European airports don't have the staff and they haven't had the ability to invest ahead of time the way we have in the U.S.," Bastian said.

The airline recently operated a ferry flight without passengers to retrieve mishandled luggage from London, Bastian said. On Monday Delta flew an A330 with luggage from London Heathrow Airport to Detroit.

"We had a separate charter just to repatriate bags back to customers, that have been stranded because of some of the operational issues that European airports were having," Bastian said.

While U.S. airlines and airports have also had to cope with staffing shortages, Bastian said that things were improving with 18,000 new hires and a total headcount of about 95% of pre-pandemic levels.

"The chief issue we're working through is not hiring, but a training and experience bubble coupled with the lingering effects of COVID," Bastian said.

Bastian did not address the ongoing pilot shortage at regional airlines and did not mention airport contractors used by Delta, which have had similar issues with hiring.

High demand, high fares

While a more reliable operation is certainly welcome news for consumers, fewer flights being operated inevitably means higher fares for the remaining flights.

Despite flying 18% less capacity in the second quarter than it did in 2019, Delta saw 10% higher revenue than it did three years ago, suggesting that the airline has yet to see consumer resistance to higher fares driven by the airline's higher costs.

Revenue from domestic flights remained higher than 2019, Delta president Glen Hauenstein said, with international consumer revenues surging as travel restrictions, including the U.S. reentry testing requirement, have lifted.

"Latin America and transatlantic exceeded 2019 levels in June," Hauenstein said.

"Momentum accelerated through the June quarter, enabling the recapture of higher fuel prices," he added. "We are seeing demand and pricing strength carry into the late summer and fall as demand remains strong."

Related: Delta will pay flight attendants for working while boarding flights, a major change-up

Hauenstein said he expected high pricing power to last as business travel continues to climb this fall.

"For the September quarter, we expect revenue versus 2019 to be up one to 5% on capacity that is 15 to 17% lower," he said.

Even with higher fares, Bastian suggested later in the call that prices could come down some amount this fall.

"We believe there's a lot of pent up demand for people who maybe didn't make it in the summer or got priced out in the summer, who will be able to travel in the fall."