Business Blog: Hoover’s Business Insight Zone

Today’s Company of the Day is Delta Air Lines.

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Delta has been singing the blues for so long that it’s hard to remember that the #3 US carrier operated from the 1920s into the 1980s without ever taking an annual loss. But the tune has been very different for Delta since the terror attacks of September 11, 2001. Like some of its largest peers, Delta has undergone a wrenching bankruptcy, from which it emerged only this year. Unlike its rivals, Delta has long avoided unionization among its workers, but now faces a groundswell of unionizing sentiment among its flight attendants. On top of all this, Delta’s beloved CEO Gerald Grinstein has retired, giving way to outsider Richard Anderson.

Despite all these challenges, last week Delta reported record quarterly revenues, along with profits that were several times higher than during the same quarter of 2006. These results represent at least a temporary victory for Delta’s strategy of expanding its international routes. Although expanding Delta’s service abroad — especially in Europe and Latin America — has been expensive, it opens the door for the airline to sell more tickets at higher rates. In quarters like the one just concluded, when the airline industry as a whole enjoyed higher demand for flights, those pricey international tickets serve as a big profit center for Delta.

So far, so good. But what happens if oil prices stay as high as they are — or even go higher? During the third quarter, Delta was able to hedge itself against higher fuel prices, a move that helped the company hold its costs in line. But fuel hedges only last for so long; they can’t protect Delta from fuel prices that stay high in the long run. It also remains to be seen what Delta’s rivals, some of which are more established in their international routes, can do to counter Delta’s encroachment on their turf. Meanwhile, though Delta has a reason to sing a happy tune.

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