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Delta trims guidance on cost of pilots labor deal

<i>Al Drago/Bloomberg/Getty Images</i><br/>The pilots labor deal will trim Delta Air Lines' profitability going forward. Pictured is a Delta plane at Bill and Hillary Clinton National Airport in Little Rock
Bloomberg via Getty Images
Al Drago/Bloomberg/Getty Images
The pilots labor deal will trim Delta Air Lines' profitability going forward. Pictured is a Delta plane at Bill and Hillary Clinton National Airport in Little Rock

By Chris Isidore, CNN

Delta Air Lines reported very strong fourth-quarter results Friday that beat forecasts, capping its first profitable year since before the pandemic. But a new labor deal with its pilots union will trim profitability going forward.

The Atlanta-based airline said it expects first-quarter earnings per share of 15 to 40 cents, well below the consensus estimate of 55 cents. The main headwind: a new tentative labor agreement with its pilots union, reached a month ago, that will increase pay by 34% over the life of the contract.

While most employees at the major US airlines are represented by a union, the pilots are the only major employee group at Delta who are part of a union. Nearly 200,000 airline employees spread across the industry are expected to get substantial pay increases in upcoming labor negotiations later this year.

Delta said it still expects to earn between $5 and $6 a share for the full year, which is good compared to the consensus forecast of $5.08 a share. But the first-quarter guidance was enough to send shares of Delta down more than 5% in premarket trading.

Signs the air travel industry is recovering

The results for the fourth quarter and full year mean Delta will pay out $563 million in profit sharing to its 90,000 employees. That’s still only a third of the record amount it paid out in 2019, when profit-sharing checks were the equivalent of two months of pay for the average Delta employee.

Still, the financial results for the fourth quarter and full year were very strong, a sign that the US air travel industry has greatly recovered from the losses of the first two years of the pandemic.

Since Delta is the first airline to report fourth-quarter results, it is being watched as an indicator of what to expect from other airlines. American Airlines gave guidance Thursday for its upcoming fourth-quarter results that was much better than expected.

Delta earned $950 million, or $1.48 a share, excluding special items, in the quarter. Delta had issued guidance last month that it expected to earn between $1.35 to $1.40 a share in the period. Analysts had been forecasting earnings of $820 million, or $1.33 a share.

One increased cost compared to 2019 is much higher jet fuel prices. The price per gallon Delta paid for fuel rose 61% compared to 2019, although the combination of fewer flights and more efficient planes helped it to trim fuel consumption by 13%. Fuel is the second largest cost for airlines, behind labor costs.

Revenue reached $13.4 billion, up 17% from the fourth quarter of 2019, ahead of the outbreak of the pandemic, and more than $1 billion above the consensus forecast.

That increased revenue came despite having 9% less capacity — a measure of available seats, adjusted for the distance traveled — than in the pre-pandemic fourth quarter of 2019. But strong demand for travel and limited capacity helped to drive fares higher. The average amount passengers paid to fly each mile on average rose 17% compared to 2019.

Southwest’s meltdown gave Delta a boost

Rival Southwest Airlines contributed to Delta’s better-than-expected revenue, after Southwest had a meltdown in its service during the December holiday period that forced it to cancel nearly half of its flights. The debacle may cost that airline as much as $825 million — part of which comes from Southwest compensating passengers for tickets they bought on other airlines.

“There were a lot of customers looking for airlines, given some of the Southwest challenges,” Delta CEO Ed Bastian told CNBC in an interview Friday.

Bastian said he doesn’t blame the FAA for the problems with a computer system that grounded all airlines’ flights nationwide for a period Wednesday morning.

He called the issue “unacceptable” but said: “I don’t lay this on the FAA. I lay this on the fact that we’re not giving them the resources, the funding, the staffing, the tools, the technology that they need to modernize,” he said.

“Hopefully this will be the call to our political leaders in Washington that we need to do better,” Bastian said.

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