Delta spat: fees, fuel, and stock

Delta spent the week telling two different audiences two different things: travelers heard that cheaper jet fuel might not mean cheaper tickets, while investors heard that Delta’s margins could get even better if fuel falls. That split blew up after Chief Executive Officer Ed Bastian said lower fuel costs would “help us boost our margins” when asked whether fares would come down. (finance.yahoo.com) The backlash landed fast because Delta had already been raising what passengers pay. For tickets bought starting April 8, Delta raised its first checked-bag fee from $35 to $45, its second from $45 to $55, and its third from $150 to $200. (fox5atlanta.com) Delta’s explanation was fuel. Bastian said fuel expenses in the second quarter would be more than $2 billion higher, and he said it was hard to picture cutting fares going into summer while oil stayed expensive. (finance.yahoo.com 1) (finance.yahoo.com 2) Airlines like bag fees because they work like a side register at a movie theater: the headline ticket can stay closer to where demand holds up, while the extras quietly lift revenue. Fox 5 Atlanta reported analysts saying airlines were leaning on ancillary fees instead of bigger fare hikes because travelers pull back faster when the base ticket rises. (fox5atlanta.com) Investors got a very different set of numbers on April 8. Delta reported first-quarter adjusted revenue of $14.2 billion, up 9.4% from a year earlier, and adjusted earnings per share of 64 cents, above the 57 cents analysts expected. (finance.yahoo.com) Delta also said first-quarter fuel expense was $2.591 billion, up 8% from a year earlier, but demand in premium cabins was still strong enough for the airline to keep talking about growth. The company projected second-quarter revenue growth in the low teens and adjusted earnings per share of $1 to $1.50. (finance.yahoo.com) Then the market added one more twist. Yahoo Finance reported Delta stock jumped nearly 10% early on April 8 alongside broader relief around an Iran war ceasefire, and FinancialContent said the shares had pushed through a long-watched $49 resistance level by April 10. (finance.yahoo.com) (financialcontent.com) That is why the same fuel story produced anger on one side and applause on the other. If oil stays high, Delta has already shown it will try to recapture the cost through fares, bag fees, and capacity cuts; if oil falls, Bastian signaled the first benefit may show up in profit margins before it shows up in your ticket price. (finance.yahoo.com 1) (finance.yahoo.com 2)