"With people returning to the skies, because the economy is larger, and the health of the industry is doing well... we ended the year 20% above pre-pandemic levels," Delta Air Lines CEO Ed Bastian told Yahoo Finance on a call, also expecting international travel demand to return in 2024.
Yahoo Finance Live anchors Brad Smith and Seana Smith examine Bastian's comments on Delta earnings, while also discussing ongoing concerns surrounding Boeing's (BA) 737 Max 9 jets which Delta does not use for its operations.
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BRAD SMITH: As Delta Airlines is the first among its peers to report results for the holiday travel period. Delta saw another strong quarter for travel demand, the company beating on the top and bottom line, posting $2 billion in Q4 profits, but the company did trim its 2024 earnings forecast. I got a chance to speak to Delta Airlines CEO, Ed Bastian, about these results and what he expects to see in the year ahead.
ED BASTIAN: One of the things that I am most proud of when I look at our achievements in 2003, was the work our team did in providing an outstanding product for our customers. We just finished the busiest holiday travel period in our history, with the 15-day period around Christmas New Year's break. As a result, we also closed the year out with revenues at an all time high, and '24 is off to a flying start as well.
BRAD SMITH: And when he talks about that flying start that '24 is off to here in this year, they actually just saw the highest cash sales day in its history, January 9th, so just earlier this week. So that is adding to this optimistic outlook here. But it's a larger question of how long this can continue. We were just talking about the CPI airfare prints that came out just yesterday, this week, and really evaluating what consumers are seeing in this even value-conscious environment that would propel them to continue to make some of these bookings, take those trips. Is it as simple as, you've got a friend that didn't get married during 2020, they had to push it all the way out to 2024, and now you've just got to make sure you travel for their wedding.
SEANA SMITH: Yeah, I think the big question going into this year, especially when you compare it to the pent up demand that we had seen over the last two years, is whether or not any of that is going to carry into this year and of course to what degree. So I think that's what a number of these airline CEOs are trying to figure out up until this point, we're going to hear a little bit more when we get more results from the sector over the coming weeks.
But in terms of demand, no surprise that this past quarter was huge here for the company, when we talk about record travel over the Thanksgiving over the holiday period, the fact that people were still willing to spend, despite the fact that it's a very uncertain environment. So I think taking all of that into account, it's an extremely optimistic set up here, at least on the demand side of things when you take out the costs and some of the pressures that we're seeing from other factors, obviously, on airlines. From the demand side of things, I think there's a lot to still be encouraged about at this point.
BRAD SMITH: Yeah, and people are taking a look at the screen here, and taking a look at the stock price reaction here this morning, perhaps wondering why shares are down 5%. Let's add a little bit more color on that I had the chance of asking Ed Bastian how long he thinks this surge in travel demand and spending can persist. Here's what he had to say.
ED BASTIAN: Travel is just catching up to its normal level of activity, and it's been viewed to be revenge travel, and it's really just people just returning to the skies, because the economy is larger, and the health of the industry is doing well. So we ended the year, as I mentioned earlier, 20% above pre-pandemic levels, we expect this year to set another record. So I think the return of international travel will be multi-year, the journey. I don't think the price points will be as expensive as they were this past m but they're still going to be at a very healthy level for us.
BRAD SMITH: And so with that in mind, one of the kind of normalization considerations here for investors is that one thing that has to be readjusted or recalibrated here is the expenses that are going into this operation. You have a pilot negotiation that finally came to a conclusion last year. You also had that capacity restoration effort, plus bringing on more aircraft.
Those aircraft they actually just made an announcement here today for Airbus, and that partnership that's going to continue to move forward, potentially going to add another cost component to this purchasing, 20 A350-1,000s with options for 20 additional wide body aircraft from Airbus, those are scheduled to begin in 2026. And so he did give us a little bit more color on that, saying essentially that is one of the contributors to the cost inputs. And I think, additionally here, you've got to think about the margin-- the growth deceleration here, the margin growth deceleration is something that investors might be also paying close attention to here, coming off of what was the revenge travel and the restoration of capacity, and everybody getting back to the air. Well now it's going to be tough comps that all the airline operators really have to think about too.
SEANA SMITH: It is going to be tough comps. That was, obviously, evident in this forecast. But I also thought it's important to point out. And he noted this in the release and in the conversation with you, just in terms of the fact that they're still optimistic about some of their long-term profit targets here. So the fact that they haven't been able to reach that more than $7 a share, a target that they've had for 2024, questions about whether or not they're going to be able to do that. Ed Bastian saying that with all the uncertainty in the environment, they thought that it was important for them to be prudent at this time. But they're not giving up on the $7 a share. So they're still optimistic that they are going to get there. But, obviously, the cost pressures when it comes to wages, when it comes to higher fuel costs, taking that into account when it also comes to some of that CapEx spending clearly is going to weigh on results, at least, in the short term.
BRAD SMITH: I'll tell you one other thing they're not giving up on. They're not giving up on Boeing here. Despite the fleet update that I just mentioned and the purchase of those A350-1000 from Airbus, they're continuing to have confidence in Boeing. And here's what he had to say about Boeing, when I had the opportunity to speak with Delta CEO Ed Bastian.
ED BASTIAN: We do not operate the Max currently as you know. And we have no intent and plan to operate the Max-9 either. Obviously, a concerning event. It's one that we are not in a position to speculate, as to what happens. I have full faith in Boeing. Boeing is a great, great company.
BRAD SMITH: And so just a little bit more color, they do not operate the Max-9. Delta Airlines does anticipate that Boeing will begin delivering a portion of its order though for 100 737 Max-10 aircraft to come in 2025 here.
So that is one thing to continue to watch within the relationship between both the airline operator and the aircraft manufacturer. But there you heard it from Ed Bastian, still has confidence in them as a technology company, and, of course, one of the great American stories of aircraft ingenuity, as well.
SEANA SMITH: Yeah. And that's exactly what we've heard from a number of the strategists and analysts that we've been talking to over the last five days. Obviously, the developments and the headlines that have been coming out from Boeing, it is concerning. It is a short-term issue that needs to be addressed and addressed in a very timely manner. But when you take into account and take a step back and what this means for the larger picture of Boeing in terms of that systemic risk, there's no real sign or any evidence right now that some of these airlines should be adjusting future orders or lose confidence in Boeing.
That was my main takeaway from many of the analysts that we've talked to over the last several days. And it sounds like Ed Bastian also agrees with that to a certain degree and saying that he is confident just in terms of what Boeing is doing with its products in the company and what the future holds for them.
BRAD SMITH: Yeah. And there's just such a backlog, as we were speaking with some of those analysts earlier this week, too, of being able to work through some of the supply chain issues, take delivery of aircraft as well, and then replace those and move those into the cycle of routes that they already operate or routes that are coming online as well here.
Just lastly, and I'll close on this, he mentioned that the Boeing 737 Max-10 is anticipated to have an elevated customer experience, improve fuel efficiency as well. And some of the best in class performance that they have come to expect from Boeing over the years and perhaps will move them forward and propel them to higher heights-- higher heights. Everybody wants to go there. Anyway, a big thanks to Delta CEO, Ed Bastian, for that interview.
