Delta Air Lines CEO raises some concerns about the industry

For Ed Bastian, CEO of Delta Air Lines, it was a bittersweet moment.

Delta’s earnings rose in the second quarter but did not beat analysts’ expectations, prompting Bastian to raise some concerns about the industry.

While Delta still posted a record quarter, its growth of four percent fell short of analyst forecasts of nearly six percent.

In a conference call on the quarterly results, Bastian said: “You can see how the price reductions this quarter are affecting the domestic market.”

Analysts at TD Cowen wrote in a note that Delta’s numbers “are likely to raise concerns about the health of the industry and lead to increased pressure on low-cost and ultra-low-cost carriers to reduce capacity.”

Low-cost carriers have been cutting capacity in the hope that their respective profits would even out. This has led to some concern among Bastian and others about the health of the industry as a whole. His words resonated with investors last week when Delta shares fell nearly five percent, although he said the company was “pretty well hedged.”

He can afford to say that, pardon the pun, because Delta is the country’s financially strongest airline. But other airlines are not on par. Even the mighty American Airlines has announced that it will have to reduce its capacity.

From an industry perspective, Bastian is concerned because low-cost airlines have little room to maneuver as they cannot or do not want to offer higher seat prices to compensate for any loss of revenue. But although he expects a decline in travel demand in the fall, he is optimistic.

“We are encouraged by the actions the industry is taking,” he said. “Seat growth is slowing and there appears to be an increased focus on improving financial performance.”

In fact, Delta recently expanded its service to the Cayman Islands.

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