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ATLANTA - Delta Air Lines is still making money as travelers continue to book flights, but soaring fuel costs are eating into its profits and lowering its expectations for the year, according to its latest report.
The Atlanta-based airline released its third-quarter results Friday, reporting record September-quarter revenue. Its fuel bill, however, climbed much faster than revenue.
For travelers, the report helps explain why more expensive tickets do not necessarily mean bigger airline profits. Airlines are collecting more money, but they are also spending substantially more to operate their flights.
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How much are fuel costs affecting Delta?
Delta’s adjusted fuel expenses reached $4.1 billion during the quarter, up 62% from a year earlier. Its adjusted average fuel price was $3.61 per gallon, compared with $2.25 last year.
The airline spent more than $500 million more on fuel than it expected when it issued its July forecast.
Meanwhile, adjusted revenue rose 16% to $17.6 billion. Adjusted pretax profit held near $1.5 billion, roughly matching last year.
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But Delta kept less of each dollar it brought in. Its adjusted operating profit margin fell from 11.1% to 9.4% — meaning it earned about $9.40 in operating profit for every $100 in revenue, compared with $11.10 a year earlier.
Fuel was not the only expense increasing. Costs outside fuel also rose, with Delta pointing to higher crew expenses, slower growth than planned and disruptions from summer storms.
Why are there different profit figures?
Delta reported net income of $756 million, down 47% from last year.
That figure includes expenses and investment changes that the company leaves out of its adjusted results. The adjusted numbers are intended to help compare its performance across different periods.
Because those calculations include different items, higher fuel costs alone do not explain the full decline in reported profit.
What does Delta expect next?
Delta lowered its full-year adjusted earnings forecast to $5.10 to $5.60 per share. In July, the airline expected $6.50 to $7.50 per share. It also reduced its forecast for cash remaining after investments in the business.
"For the full year, we expect to generate a pre-tax profit of roughly $4.5 billion, absorbing a $6 billion increase in fuel costs," CEO Ed Bastian said.
The airline expects its adjusted fuel price to reach approximately $4.25 per gallon in the final quarter of the year.
Delta’s refinery provides some protection by helping offset fuel expenses. Even with that benefit, the company expects to pay more per gallon than it did during the third quarter.
What does this mean for ticket prices?
Across the industry, airlines have raised fares and some fees to help cover higher costs.
The war with Iran and disruptions around the Strait of Hormuz have helped drive fuel prices higher and made them harder to predict.
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Federal inflation figures show U.S. airfares were 23.4% higher in August than a year earlier.
Holiday flights were more expensive, too. As of Sept. 24, Hopper estimated that domestic round-trip Thanksgiving tickets averaged $402, up 31% from last year. Christmas tickets averaged $452, an increase of 23%.
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Those are industrywide figures, rather than Delta-specific prices. Delta’s results show it collected more passenger revenue for each mile flown, but that does not mean every customer’s ticket rose by the same amount.
Could fewer flights keep fares high?
The number of seats available also affects ticket prices.
Delta expects to increase its total seats by less than 2% in the December quarter while reducing main cabin seats. It forecasts approximately 20% revenue growth during that period.
Other carriers have cut weaker-performing routes. Spirit Airlines’ shutdown in May also removed an estimated 1% to 2% of seats from the U.S. market, according to Barclays figures reported by CNBC.
Travelers may still find cheaper options outside major holidays. Hopper economist Hayley Berg said that customers’ focus on Thanksgiving and Christmas trips could leave opportunities for deals between peak travel periods.
What can be concluded?
Delta’s results show that strong demand and higher revenue are helping it cover much of its growing fuel bill. Premium seating, loyalty programs and its refinery also provide financial support.
Still, the smaller profit margin and lower annual earnings forecast show that fuel costs are taking a toll.
The report does not establish when tickets will become cheaper. Even if fuel prices fall, fares will also depend on how many people want to travel, how many seats airlines offer and how much competition exists on a route.