Delta Air Lines forecasts labor costs will weaken profits after strong quarter

Despite ending the year with higher revenue and profit, Delta Air Lines said Friday that it expects tighter profit margins next quarter. In its earnings report, Delta CFO Dan Janki said the largest airline by revenue expects a rise in non-fuel operating costs including labor costs during the first quarter of the fiscal year. 

"For the March quarter, we expect non-fuel unit costs to increase 3 to 4 percent year-over-year, including a full quarter impact from labor cost increases and finalizing the rebuild of our network for the peak summer period," Janki said. 

Delta predicted that first-quarter earnings will be 15 to 40 cents per share, below the 59 cents forecast by analysts in the FactSet survey. 

NEW PILOT CONTRACTS TO DRIVE UP COSTS AT US AIRLINES

Last month, the Atlanta-based carrier offered its pilots a substantial pay increase as part of a new contract to help offset increased working hours and short-staffed conditions. 

Under the tentative agreement, which is still waiting for approval from the union, the airline offered a 34% cumulative pay increase over three years, including an immediate raise of at least 18% on the date the contract is signed, according to Reuters. 

DELTA AIR LINES OFFERS PILOTS A NEW CONTRACT AS POTENTIAL STRIKE LOOMS

CEO Ed Bastian remains upbeat, though, especially after reporting net income of $828 million during the fourth quarter as demand remained strong despite higher airfares. That compares to $1.1 billion of profit in the same quarter of 2019. 

Operating revenue for the three months ended Dec. 31 grew 17% to $13.4 billion.

That momentum has carried over into the new year, as the travel industry continues to recover, the carrier said. 

DELTA ANNOUNCES FREE WI-FI BEGINNING FEBRUARY 1

"As we move into 2023, the industry backdrop for air travel remains favorable and Delta is well positioned to deliver significant earnings and free cash flow growth," Delta CEO Ed Bastian said in a statement. 

Delta is guiding to revenue growth of 14%-17% versus 2019 for the March quarter and earnings per share of 15 to 40 cents.

The full year outlook is for revenue growth of 15%-20% and earnings per share of $5 to $6.

The Associated Press contributed to this report. 

GET FOX BUSINESS ON THE GO BY CLICKING HERE