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James Burgess

James Burgess

James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…

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Delta Air Lines Plans To Trim Capacity Growth And Hike Fares

Delta Airlines

In the second part of the year, Delta Air Lines aims to boost its fares as it faces rising fuel costs and barriers to revenue.

Delta Air Lines presented its investors some new strategies for the second part of the year that will trim its capacity growth plan—a plan that eventually could end with higher fare prices.

According to Delta, it hopes to become “the first network carrier to return to positive unit revenue growth later this year.”

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The airline says it's delaying previous plans to expand its business, partly because it wants to stop airfare prices from falling. It also announced it will cut its plans to add new flights in the second half of the year as it hopes rebalance the supply and demand equation.

Fuel prices are up more than 60 percent from the lows experienced earlier this year, although fuel is still much cheaper than a year ago.

Airlines lowered airfares and increased capacity due the depressed oil prices, but so far, that pressure hasn’t really resulted in good news for travelers, as airlines are yet to pass these savings along to the consumer. Last year, airfares were only slightly lower than the previous year.

Related: Oil Edges Higher Ahead Of Weekly Inventory Report

According to a U.S. Department of Transportation report published earlier this month, U.S. airlines raked in a profit of $25.6 billion last year, a 241 percent increase from 2014.

Companies also made significant savings as the drop in oil prices saw U.S. airlines spend some $27 billion on fuel in 2015—38 percent less than in 2014. Fuel prices averaged 35 percent lower in 2015 than the previous year. For the 25 airlines with scheduled passenger service, total operating revenue last year was slightly lower at $168.9 billion, down from $169.3 billion in 2014.

Related: Did The Saudis Exaggerate Their U.S. Treasury Holdings? 

Airlines are locking in cheap oil for the next few years, taking advantage of what could end up being a temporary period of low prices. Some of the largest airlines are stepping up their hedging programs in a big way for the first time since prices started to collapse in mid-2014. In early April, several airlines secured hedges for oil for 2017, 2018, and even 2019, although the exact companies were not disclosed.

Delta also announced on Monday that it is raising its quarterly dividend 50 percent. Delta’s stock has risen from $42.35 on May 12 to $44.18 on news of increased dividends and its plan to limit capacity growth.

By James Burgess of Oilprice.com

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