Delta Airlines has seen a significant increase in profits. The airline recently released its Q4 and full-year profits, which showed a general increase in year on year revenue. This is all despite the airline facing a year of harsh fuel prices. In fact, fuel prices have been labelled as the cause for a number of issues for different airlines. One of the more notable examples is Emirates, who’s profits feel rather drastically this year. Also, Flybe fell foul of rising fuel costs, being forced to put themselves up for sale.
How Do Fuel Costs Affect Carriers?
There are two major ways in which airlines purchase fuel. Both come with a certain level of risk as there is no guarantee which way the market will go. A fuel hedging contract is when an airline agrees to buy X amount of fuel at a fixed rate over the length of the contract. In fact, after months of steady fuel price increases, the cost began to fall again.
However, since then, it has slowly begun to rise again. As a result of this volatility, many airlines have taken a huge hit to their profits over the past 6 months. While in the case of Emirates, this has been attributed to not hedging for fuel, Cathay Pacific has reportedly lost $6.5 billion. The airline has reportedly lost the amount as it is locked into a fuel hedging contract paying fixed prices.
How Has Delta Fared?
Delta does not hedge fuel and therefore has been paying market rate since it quit an agreement in 2016. Despite this, Delta doesn’t appear to have fared too badly. In fact, in Q4 of 2018 Delta made total passenger revenue of $9,647m. To compare, this is up by 6.9% from last year. However, they believe that the ongoing government shutdown, which has significantly affected Southwest, will be detrimental to the airline. Along with the timing of Easter and fluctuating currencies, Delta recons that Q1 results for 2019 will only rise by 2% if at all.
What Did Delta Say?
In an emailed statement Delta’s President,Glen Hauenstein, told Simple Flying: “Delta’s strong brand momentum was evident across the business with positive unit revenue growth in all geographic entities for the full year, a record revenue premium to the industry, and double-digit revenue growth from premium products and non-ticket sources. Our March quarter adjusted unit revenue growth is expected to be flat to up two percent including impacts from the timing of Easter, increasing currency headwinds, and the ongoing government shutdown.”
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