Delta aims for higher fares as fuel prices rebound
Delta Air Lines will pull back on its expansion plans for the second half of 2016 due to a rebound in jet fuel prices. It’s a move Delta hopes will help it charge higher airfares later this year.
The airline said it reducing its planned capacity growth to below 2% in the second half of this year. Delta also said it would defer delivery of four widebody jets from 2018 to 2019 or 2020.
Slowing its growth “allows Delta to address current fuel and revenue headwinds, while positioning the company to achieve its long-term goals.” The information was made in filing Monday ahead of an investor presentation set for Tuesday.
One of Delta’s goals is to stop airfares from falling. In fact, the airline’s presentation says that it is hopeful of being the first major airline to see an increase in fares this year.
Fuel costs are still well below year-ago levels, but they’re up more than 60% from the low points earlier this year as oil prices have rebounded.. The cheap fuel had caused all the major U.S. airlines to expand capacity to try to take advantage of lower costs – fuel is the second largest expense for airlines after the cost of labor.
But the growth in capacity has pushed down fares at the major carriers since more choices leads to lower prices for passengers.
Delta had hinted that it could cut its growth plans on a conference call with analysts in April. The airline’s filing did not give details about what markets could see some reduced expansion plans.