Arlington, USA: Delta Airlines ground staff … [+]
Delta Air Lines said its second-quarter profit fell 29% from a year ago as seat supply outstripped demand, pushing down fares, a trend spreading across the airline industry.
Meanwhile, Wheels Up, the company’s private aircraft business that Delta and a consortium of investors bought a year ago, lost $97 million in the first quarter, roughly the same amount it plans to lose for the same period in 2023. Wheels Up has never turned a profit even before Delta’s bailout and has accumulated losses of $1.86 billion since its founding.
Earlier this year, Delta parachuted in its former chairman of operations and has since brought in various vice presidents, mostly from operations, and prior to that, appointed a Delta board member as CEO of Wheels Up.
While operations are certainly part of overall profitability, and Delta has experience with private jets, Wheels Up’s fleet is made up primarily of Textron Aviation’s King Air aircraft.
The idea for these turboprop planes was first conceived in the 1960s, but they were not originally designed for high-frequency airline operations, which meant routine maintenance was frequent and time-consuming, and their relatively slow cruising speeds meant that it was time-consuming and expensive to move empty planes into position to pick up the next set of passengers.
Wheels Up’s revenue is down 44% year over year. Active members and revenue are both down 25% year over year, and cash on hand is down nearly a third to $180 million, but could bottom out in the second half of the year at the current burn rate. Recent adjustments to improve the company’s financial position include reducing major flying areas and aircraft numbers, closing maintenance facilities, and most recently laying off 11% of its pilots.
Another market challenge is the decline in private aircraft charter flights operating in the U.S. Inflation and uncertainty are causing private jet customers to reconsider the value of a $20,000 flight from New York to Palm Beach.
Delta’s stock price is down 18% from its 2024 high, and shareholders’ patience may be tested as the airline dilutes resources and executive talent in unprofitable non-core businesses. Delta’s resilience is admirable and it will likely be able to raise more sources of external capital if needed, but without meaningful financial improvement in the near term, it will inevitably have to explore other avenues.
