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 fares and reducing flights. But he sees big changes on the horizon. Continued fuel price increases could lead to sweeping restructuring in the airline industry, Bastian said during Delta’s first-quarter earnings call today (April 8).
“In my career, I’ve seen many times of disruption in this industry,” said Bastian, who has been CEO for a decade and helped the airline deal with crises like 9/11, bankruptcy and the COVID-19 pandemic during his 30 years with the company. “Over and over again, fuel prices have been the most powerful catalyst for change: splitting the winners, and forcing weaker players to scale back, 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 key route for global oil exports. The move added an estimated $330 million in costs to Delta in the January-March quarter, the company reported, with another $2 billion expected in the next three months.
The two-week ceasefire announced yesterday (April 7) between the two countries has provided some relief, as Iran has agreed to reopen the Strait of Hormuz as part of the deal. Airline stocks responded well: Delta shares jumped nearly 6 percent today, while American Airlines and United Airlines rose nearly 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 profit reached $420 million, up 45 percent from last year.
Still, Bastian cautioned that the revolution is far from over. “We woke up this morning with a very different set of fuel than we had when we went to bed,” he said, predicting that prices will eventually stabilize at higher levels.
“One uncertainty is the uncertainty of all,” Gernot Wagner, a climatologist at Columbia Business School, told the Observer. “It would be foolish to bet that everything will remain calm from here on out.”
To manage the chaos, Delta plans to reduce capacity growth by about 3.5 percent next quarter and announced an increase in checked baggage fees—$10 more for the first two bags and $50 more for the third—following similar moves by United and JetBlue.
Another strategic asset for Delta is an oil refinery near Philadelphia, purchased in 2012, which is expected to generate about $300 million in financial benefits this quarter.
Even with that buffer, Bastian warned that the entire airline industry is facing structural change. He pointed to the late 2000s and early 2010s—a period of high fuel prices that spurred major consolidation, including Delta’s 2008 acquisition of Northwest. “I think the higher fuel prices will cause important changes in the planning,” said the official.
Despite the upheaval, Bastian remains optimistic about demand from affluent travelers. Consumers shaken by the Trump administration’s tariffs and its recent Middle East conflict have largely shelved their travel plans. “The high-end consumer, the premium consumer, cannot protect themselves or be protected from articles,” he said.
