With quarterly profit beat, Delta eyes accelerated hiring to meet 'surprise' demand rise: CEO

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By Tracy Rucinski

CHICAGO (Reuters) – Delta Air Lines (N:) reported a greater-than-expected increase in quarterly profit on Thursday thanks to “surprise” demand growth, prompting the airline to accelerate its hiring of pilots, flight attendants, and airport workers, Chief Executive Ed Bastian told Reuters.

Delta, the first of U.S. airlines to publish quarterly results, posted a 13.1 percent rise in net income to $1.5 billion in the quarter to Sept, 30 on total adjusted revenue of $12.6 billion, up 6.5 percent from a year earlier.

Adjusted earnings per share reached $2.32, beating analysts’ expectations for profit of $2.26 per share, according to IBES data from Refinitiv.

“The size of the demand surprised us,” Bastian said in a telephone interview, attributing the earnings growth to strength in its core product and markets, as well as incremental pick-up of demand that rivals who own the idled Boeing (NYSE:) 737 MAX were not able to meet.

Unlike its main U.S. competitors, Delta does not own the 737 MAX, which has not flown since a worldwide grounding in March that is forcing more than 100 daily flight cancellations at Southwest Airlines (N:) and American Airlines (O:).

As a result, Delta is increasing its flight capacity while growth at rivals that own the 737 MAX remains stuck. It is forecasting capacity growth of around 4.5 percent in the fourth quarter.

That growth, however, comes at a cost.

The airline paid pilots a record amount of overtime between May and August, double the same period in 2018, Reuters reported on Wednesday.

“Given the high volume that we’ve experienced and the demand for the product, it’s created a need for additional resources across all of our work groups (…) and getting this staffing in sooner,” Bastian said.

Growth will continue in the fourth quarter, with the holiday travel season looking “healthy,” Bastian said, even as concerns of a global economic slowdown and trade disputes dampen some estimates for international travel demand.

“I know there’s always a lot of speculation on the strength of the economy but in our business we’re heavily levered toward the U.S. consumer and the U.S. consumer is still doing quite well,” he said.

Still, Delta is among the U.S. airlines hardest hit by a new 10% tariff on European-made Airbus (PA:) planes.

Bastian said the tariff is not expected to have an impact this year because its remaining Airbus deliveries will come from the European planemaker’s plant in Mobile, Alabama, which is exempt from the levy.

He declined to provide a breakdown of 2020 Airbus deliveries but said the airline is “looking at all of our options to make sure that we don’t incur any increases to our already negotiated prices with Airbus.”

Last month before the tariff news, Delta pledged to buy 14 more A350s, which are assembled in Europe, as part of a strategy to grow in Latin America through the acquisition of a 20% stake in LATAM Airlines Group.

The airline is also still targeting an investment of around 100 million euro ($109.80 million) in the rescue of Italian flagship carrier Alitalia, Bastian said.