Delta Air Lines Inc. said travel demand remained strong through the end of the year, but its shares tumbled Friday as the airline said rising costs could eat into first-quarter profit.
Delta said it expects to report adjusted earnings of 15 cents to 40 cents a share in the first quarter, below what some analysts had been anticipating.
Delta said it expects nonfuel costs per seat flown a mile to increase 3% to 4% in the first quarter from the same period a year earlier, including the expense of completing the rebuild of its network for summer and labor-cost increases. Delta shares fell about 4% by midday Friday.
Delta reiterated its earnings guidance for the full year and said it expects first quarter sales to be 14% to 17% higher than in the same period of 2019, before the Covid-19 pandemic upended travel.
"I've never seen a more constructive backdrop for the industry," Delta Chief Executive Officer Ed Bastian said during a conference call. "Demand remains strong as passengers return to the skies."
Last year was a turning point for the U.S. airline industry. After airlines' losses of billions of dollars during the Covid-19 pandemic, people wanted to fly again —in droves. Travelers were willing to shell out for more expensive tickets , and airlines were able to recoup increased fuel and labor costs, helping them to turn profitable again.
On Friday, Delta reported a profit of $828 million for the final three months of the year, and a profit of $1.32 billion for all of 2022.
Those figures were below Delta's 2019 profits, but the airline's revenues topped prepandemic levels. Excluding third-party sales from an oil refinery the company owns, Delta's quarterly operating revenue of $12.3 billion was about 8% higher than in the fourth quarter of 2019.
Delta's adjusted quarterly profit of $1.48 a share exceeded the $1.35 to $1.40 range it forecast in December, and it beat the $1.32 a share that analysts were expecting.
Delayed deliveries of new planes and logjams in hiring and training pilots hindered airlines' ability to grow last year. Executives have said some of those issues will likely spill into 2023, preventing airlines from flooding the market with seats and undermining their pricing power. Delta has said it is planning to return to full 2019 flying capacity this summer as it works through the process of hiring and training new employees.
By summer, Mr. Bastian said he expects the airline will have been able to work through remaining training bottlenecks, which can be a drain on existing employees.
Pilot pay across the industry is set to rise, which contributed to Delta's higher cost outlook. Delta has proposed a new contract for pilots that would boost their pay by at least 34% over the term of a four-year deal. Union leaders will review that deal and determine next week whether to send it to members for a vote.
Rival airlines are also negotiating new contracts for pilots and other employees, which is expected to push pay rates higher. Pilots at Spirit Airlines Inc. this week approved a deal that will boost pay by 34% over two years. Delta said it expects its unit costs to ease for the full year as it restores its full network.
American Airlines Group Inc. on Thursday boosted its fourth-quarter forecast , with executives citing strong demand and fares. The airline said revenue was higher than it had previously anticipated during the quarter, and it now expects fourth-quarter adjusted earnings of $1.12 to $1.17 a share, significantly higher than its previous guidance. American is scheduled to report its fourth-quarter earnings later this month.
The final days of 2022 were turbulent for air travel. A winter storm that swept across much of the country just before Christmas led to huge numbers of cancellations. Most airlines were back to normal within a few days, but Southwest Airlines Co. struggled more than rivals— canceling more than 16,700 flights from Dec. 21 through Dec. 31 in a cascading disruption that it has said will cost it as much as $825 million .
Delta didn't break out the financial impact of the storm. American Airlines executives said this week that they believed the impact was fairly modest—contained to just a few days. Both carriers said they saw a small uptick from reaccommodating Southwest fliers looking for last-minute tickets. Delta President Glen Hauenstein said Delta is still seeing some benefit in markets where it goes head-to-head with Southwest, but expects that to lessen in the coming months.
Airlines faced a new challenge this week when the outage of a federal pilot-alert system prompted a nationwide ground stop that snarled flights throughout the day Wednesday even after it was lifted. Carriers said their operations generally returned to normal by Thursday.
Mr. Bastian said the upset demonstrates that the Federal Aviation Administration needs more resources and funding.
"We have aging systems that aren't as resilient as they need to be. You have tools and technologies that are somewhat outdated. And staffing levels—not where they need to be," he said.
Broader economic uncertainty could weigh on travel demand this year, but airline executives have said they haven't seen signs of that so far.
Mr. Hauenstein said that demand momentum is continuing into this year, and that the airline expects revenue for the first three months of 2023 to be 14% to 17% higher than in the same period in 2019. The airline said business bookings have held steady, with domestic corporate sales hitting about 80% of 2019 levels in the final quarter of the year.
Devon May, American's chief financial officer, said Thursday: "We're only a couple of weeks in and the demand has continued to stay strong."