Like many airline executives, Delta CEO Ed Bastian has been forced to respond to the ongoing oil crisis caused by the Iran war by raising prices and cutting flights. But he sees bigger changes on the horizon. Continued fuel price hikes could lead to a sweeping restructuring of the airline industry, Bastian said during Delta’s first-quarter earnings call today (April 8).
“Over my career, I have witnessed many periods of turmoil in this industry,” said Bastian, who served as CEO for a decade and helped the airline weather crises such as 9/11, bankruptcy and the COVID-19 pandemic during his 30 years with the company. “Time and time again, high fuel prices have been the most powerful catalyst for change: separating the winners, forcing weaker players to rationalize, consolidate, or be eliminated.”
Jet fuel prices have nearly doubled since February, when the US war with Iran led to the closure of the Strait of Hormuz, a vital route for global oil exports. The increase added about $330 million to Delta’s costs during the January-March quarter, with an additional $2 billion expected over the next three months, the company said.
The ceasefire announced yesterday (7 April) between the two countries provided relief, as Iran agreed to reopen the Strait of Hormuz as part of the agreement. Airline stocks rose in response: Delta shares jumped about 6 percent today, while shares of American Airlines and United Airlines rose about 7 percent and 10 percent, respectively.
Investors also welcomed Delta’s positive quarterly results. Revenue rose 9.4 percent year over year to $15.9 billion. Although the company reported a net loss of $289 million, its adjusted earnings were $420 million, up 45 percent from last year.
However, Bastian warned that the volatility is not over yet. “We woke up this morning with a completely different set of fuel assumptions than we had when we went to bed,” he said, expecting prices to eventually stabilize at higher levels.
“The only uncertainty is the uncertainty of everything,” Gernot Wagner, a climate economist at Columbia Business School, told the Observer. “It would be foolish to bet that everything will stay quiet from now on.”
To manage the disruption, Delta plans to cut capacity growth by about 3.5% next quarter, and announced higher fees on checked baggage — an additional $10 for the first two bags and an additional $50 for the third — following similar moves by United and JetBlue.
One of Delta’s strategic advantages is its oil refinery near Philadelphia, which it purchased in 2012, and which is expected to generate financial benefits of about $300 million this quarter.
Even with this reserve, Bastian warned that the entire aviation industry is facing structural change. He pointed to the late 2000s and early 2000s — an era of high fuel prices that spurred major mergers, including Delta’s acquisition of Northwest in 2008. “I expect higher fuel prices will lead to more significant structural reforms,” the executive said.
Despite the turmoil, Bastian remains optimistic about demand from affluent travellers. Consumers, shaken by the Trump administration’s tariffs and the recent conflict in the Middle East, have largely kept their travel plans. “The upscale consumer, the premium consumer, is explicitly immune or has become immune to the headlines,” he said.
