Delta Air Lines just offered a candid look at how it is thinking about pricing, capacity, and competition…and none of it points toward cheaper travel anytime soon, regardless of oil prices. Several comments were made in its latest earning call that, when taken together, suggest Delta will aggressively use this moment to reset pricing power.
Delta Signals Sticky Airfares, Capacity Cuts, And Even Airline Mergers Ahead
If you were hoping that falling oil prices might soon translate into cheaper tickets, Delta CEO Ed Bastian just poured cold water on that idea.
Don’t Expect Airfares To Drop…Even If Fuel Does
Speaking on the 2026 Q1 earnings call, Bastian said:
“We do expect, hopefully, that fuel settles down. Now, it’ll settle down, I think, at a higher level than where we have in the plan. Fuel recapture is going to be important no matter what we do, and the degree to which we can retain any of the pricing strength that we talked about from industry rationalization, that will certainly help us boost our margins this year and clearly into next year as well.”
Bastian is effectively saying that fare increases tied to higher fuel costs may not be temporary. If Delta can keep those higher fares in place, it will. That’s what every airline wants, though airlines usually are not so explicit about admitting it.
Airlines don’t price tickets based on cost alone…they price based on demand and competitive dynamics. If customers continue to pay higher fares, there is little incentive to roll them back later, even if fuel prices ease.
I realize that it isn’t pleasant to see fare increases stick and is certainly not something I celebrate, but at the same time we have to realize we are in an environment in which many U.S. carriers are not making money and the recent shock in oil prices is only going to make it worse.
The airline industry, on this side of deregulation, is almost inherently a low-margin business because it seems like investors are always willing to invest, creating steady streams of competition. I don’t expect Spirit and JetBlue to survive as stand-alone carriers, but I also think that if Delta and United continue to dominate and do so by raising fares, there will be new competition that emerges.
Capacity Cuts Are Part Of The Strategy
Joe Esposito, Delta’s Executive Vice President and Chief Commercial Officer, noted coming capacity cuts:
“We are targeting capacity in off-peak times. Off-peak for us, if you think about our unit revenue basis is 15% to 20% less valuable than peak time flying.”
He explained that off-peak includes “edge-of-day” and “redeye flying.”
This, of course, is the other half of the equation. If airlines cannot fully control costs, they can control supply.
By trimming less profitable flying like midweek departures, marginal routes, redeyes, Delta can keep planes fuller and yields higher. That, in turn, supports the very pricing power Bastian is talking about.
As I noted in my analysis of Delta’s earnings, the focus is shifting even more from growth to discipline in the current environment. Rather than chasing more market share right now, Delta is managing supply to protect margins.
Premium Demand Remains Strong, With Weakness In Europe And Mexico
Esposito aded:
“Across our network, we’ve got a very strong bookings right now for the second quarter and summer. So in a broad view, we’ve seen very strong demand and especially, still in the premium and corporate space.
“Couple of places that we’ve talked about before is point of sale Europe has been a little bit weaker. We’ve seen a little bit of weakness in Mexico leisure, just with the incidents that occurred in Puerto Vallarta, we’ve taken capacity actions there. So a couple of hotspots around our network, but overall, very broad and broad strength in what we’re seeing.”
This trend follows what we’ve seen and helps to explain why Delta has invested so much in its premium product and why others are following. As I note in my own Award Expert consulting business, the kind of clients who buy premium cabin tickets really don’t care if oil doubles in price or ticket prices rise at all…
In a separate interview, Bastian claimed that corporate travel bounced right back after the TSA was funded. Meanwhile, we see travel in originating in Europe and travel to/from Mexico is depressed and that makes perfect sense considering the geopolitical issues unfolding now.
Delta Is Openly Talking About Airline Mergers
Perhaps the most interesting part of the call was when Bastian addressed potential airline mergers.
“You have a considerable portion of the industry that has not returned its cost of capital, has not made a profit in years. Going back over the last decade when we saw consolidation happen, we forget what drove consolidation. What drove consolidation was higher fuel prices back in 2009, 2010, 2011, and we were the leaders in that with the acquisition of Northwest in 2008.
“I anticipate higher fuel prices will cause much more significant structural reform than we’ve seen over this period. COVID, I think, was a different animal, where no one was strong enough to engage in the type of rationalization that was necessary.
“As we look forward to building a healthier business for the future, there’s a number of business models that I think their owners are going to start questioning whether they continue to commit capital to. However that plays out, it’s going to be of benefit to Delta.”
Bastian uses analyst jargon a lot more than United Airlines CEO Scott Kirby, but he’s pretty explicit here. By “structural reform” he means consolidation.
He’s correct that the last wave of mergers was also precipitated by rising oil prices and I quite agree we are in narrow window in which the likelihood of at least one merger and acquisition is higher than it has been in a decade. Still, it is interesting that he so confidently believes whatever happens will benefit Delta.
If JetBlue mergers with either American Airlines or United Airlines, it will create stronger competition for Delta in New York. Even if Delta manages to pick up some additional slots as part of the deal (via concession), a more powerful AA or UA will not inevitably help Delta.
Fewer competitors generally mean less downward pressure on fares and fewer choices for consumers, which will mean airfare is more expensive…it’s why I don’t support mergers in general. I suppose Bastian’s hope is that the consolidation, however it takes place, will lead to higher prices, which will benefit Delta. He might also be hoping that American and United (and perhaps Alaska too) get into a bidding war over JetBlue and overpay, which would only benefit JetBlue stockholders.
In any case, I’m not certain consolidation will necessarily benefit Delta and the (relatively) small size of JetBlue and Spirit hardly make a “significant structural reform” likely. This isn’t like Northwest-Delta, US Airways-American, or Continental-United.
CONCLUSION
Delta’s latest earnings call was a window into how the airline industry is thinking right now. Delta’s game plane is three-fold:
- Raise fares
- Cut capacity
- Focus on premium demand
(And potentially consolidate)
Most importantly, Delta will hold onto higher prices for as long as possible. Even if fuel prices fall, don’t expect Delta or any airline to lower fares because they won’t unless they have to and we are in an environment where the competitors that have kept prices in check may soon fall lie flies.
image: Delta
Delta is already in general more expensive than the other carriers, both domestic and international. And with “unbundled” DeltaOne likely coming, whatever are the cheapest DeltaOne fares now will become “Basic.”
Matthew, I’m thinking of doing what you’re doing and becoming a free agent.
I recommend it! It is liberating.
I concur. In many cases (look at the AA situation with Basic Economy), loyalty makes you easier to exploit.
Bastian has never been shy about giving customers a big middle finger so unfortunately none of this is surprising. Remember when Delta had that gargantuan meltdown and he brushed it off and flew away to vacation in Paris? That tells you pretty much what you need to know about the guy.
On the merger front, there has been far far too much consolidation in the domestic airline industry. That overconsolidation is exactly why Delta can just jack up fares and generally make things worse for the flying public without substantial fear of repercussions. Further, the government has accepted mergers that not only are against the public interest but often don’t make sense. If you want an example, just wait until United tries to absorb JetBlue. That’s painfully obviously a terrible idea but I’d lay better than even money that this administration will allow the buyout.
Et voilà! Certainly, there’s more to come.
Aren’t your award expert consulting clients using their miles? Which by definition is caring about the price – they’re paying you to save. They might be willing to spend high numbers of miles, but time and time again premium demand has shown it has price elasticity. It might not be linear, and have a point of discontinuity you haven’t seen, but it exists. Look at what happened to the luxury brand stocks reacting to the Iran crisis.
It is worth adding that installed in 1968 at ATL, the iconic “Fly Delta Jets” neon sign is a 400-foot-long, 20-foot-high landmark atop the Technical Operations Center. It was created to highlight Delta’s transition to an all-jet fleet, went dark during financial struggles, and was proudly re-lit in 2007, symbolizing company resilience.
P.S. – Remember that ATL is the busiest and most efficient airport in the world and, by some accounts, the best in North America.
“Raise fares, Cut capacity, Focus on premium demand…” For the business, it’s a good strategy; for workers and consumers, it likely isn’t. We’ll all have to adapt. Ed wants his $100 million in incentives.
@ Matthew — Airline executives all act as if they can just raise fares, and people will pay them. That is absolutely contrary to rational economic theory. The rules of supply and demand haven’t and won’t change. High fuel prices are going to leave people with less money to fly, which will dampen demand. Higher airfares don’t work with declining demand unless supply is cut even further, amd it wont be. It never is.
It will make price-sensitive leisure travellers less inclined to fly, perhaps, but if you’re an Atlanta-based Delta elite who flies down to Jo’burg or over to Seoul every couple of months on a flexible business-class ticket, you’re not the type of customer who’s going to start flying United via EWR or SFO just to save a few hundred bucks. That’s the high-yield repeat customer they’re chasing, not the price-sensitive annual-holiday economy class crowd.
@ Matthew — Furthermore, much of the increased demand for premium seating is the result of overvalued stocks. TACO won’t be able to keep the market from crashing much longer. Once stocks finally correct by 20%, we’ll see lots of returees cut back on travel spending until their portfolios recover from the economic destruction caused by the Idiot in Charge.
My husband and I dropped any airline loyalty years ago. We do two big international trips each year, booking the least expensive full business class fares regardless of the airline. To us, the itinerary and price are the most important criteria. Why should we show loyalty to some corporations that don’t give a damn about us other than our money?