Delta lost $940 million in Q1. But bookings and revenue are surging

Delta Air Lines lost $940 million in the first quarter yet bookings surged in recent weeks, setting up a breakout summer as Americans try to put the pandemic behind them.

Shares jumped more than 6% before the opening bell Wednesday on strong revenue numbers.

The Atlanta airline still faces stiff headwinds, including a sharp rise in fuel and labor costs. And it is not clear whether spiking inflation will throttle travel spending.

On Tuesday, the U.S. reported that inflation in the past year rose at its fastest pace in more than four decades, led by soaring fuel costs, which is the second largest input costs for airlines after labor.

Delta's costs for jet fuel is up 33% from just the last quarter. Total adjusted operating expense reached $9 billion in the first quarter, up 11% sequentially because of fuel prices and also the ramping up operations from the pandemic.

So far, though, neither inflation, the ongoing pandemic nor Russia's war against Ukraine seem to be having any impact on ticket sales. Delta officials say that bookings started to rise in late February and have kept going.

"The last five weeks have been the highest bookings in our history," CEO Ed Bastian said in an interview. "I think that's an indication that people are through with the virus. They feel they have all the tools and the technology to manage it."

Bastian said he expects travel demand to remain strong for two to three months — about as far into the future as airlines care to venture.

"Then, when we get to the fall, that will be the next inflection point as to consumer health, what impact inflation has had on them, higher fuel prices, what impact there is from the virus," he said.

Delta forecast second-quarter revenue of about 95% of pre-pandemic levels, up from 89% in the first quarter. The trend will be driven by more spending on premium seats and more charging with Delta-branded credit cards.

At the same time, Delta is bracing for much higher costs. It forecast that spending on labor and everything else other than fuel will rise about 17% on a per-seat basis, compared with the same quarter in 2019.

And jet fuel, which cost Delta an average of $2.79 a gallon in the first quarter, is expected to jump to between $3.20 and $3.35. If Delta had paid the higher price in the first quarter, it would have spent an extra $364 million fueling up.

Bastian said travel demand is strong enough to let Delta cover higher fuel costs.

From under 90,000 on some days in April 2020, now more than 2 million people a day on average board planes in the United States. So far in April, airport crowds are down only 9% from April 2019, according to government figures.

Business travel, and in particular international corporate travel, have not recovered yet, however. Airlines are lobbying the Biden administration to drop a requirement that flyers test negative for COVID-19 before boarding a flight to the U.S., which they think is holding back people who are afraid of being stranded far from home if they contract the virus.

It is unclear if administration officials will drop that rule. They are also considering ending or suspending the requirement to wear face masks on planes, in airports and on public transportation.

Bastian favors eliminating the mask mandate. He said some people might start flying if they don't have to wear a mask, and others might stop flying if other passengers are unmasked. He called both groups "fringe."

If masks are no longer required, "I think you'll see a surprising number of people continue to wear masks, and certainly some of our employees will wear masks," he said. "I may choose to wear a mask once in a while."

In the first quarter, Delta said its loss, excluding special items, worked out to $1.23 per share. Analysts polled by FactSet expected a loss of $1.27 per share, but they predict profits in each of the next three quarters and the full year.

Revenue was $9.35 billion. Delta is getting nearly the same amount of money per passenger that it got in 2019, but there are more empty seats — the average flight was 75% full, compared with 83% in early 2019.

Like other airlines, Delta has added debt during the pandemic by borrowing from the federal government and private sources.

At the end of the March quarter 2022, the company had total debt and finance lease obligations of $25.6 billion. It aims to trim about $6 billion in debt by the end of 2024.