Low Fuel Costs Aid Delta's Q2 Earnings, Expenses on Labor Stay High

Delta Air Lines DAL reported better-than-expected earnings per share and revenues in the second quarter of 2025, results of which were unveiled yesterday. However, the bottom line declined substantially year over year due to high labor costs. 

Salaries and related costs rose 10% to $4.4 billion. The same increased 8% in the first quarter of 2025. As a result of this continuous increase, this cost metric was up 9% year over year in the first half of 2025. The northward movement was due to higher wages stemming from the contract with pilots that was ratified in 2023. Primarily due to the increase in salaries and related costs, non-fuel unit costs were up 2.7% in the first half of 2025.

Delta Air Lines Price, Consensus and EPS Surprise

Delta Air Lines, Inc. price-consensus-eps-surprise-chart | Delta Air Lines, Inc. Quote

However, good news on the cost front for DAL came in the form of the 13% decline in expenses on aircraft fuel and related taxes in the June quarter.  With oil prices moving south, the average fuel price per gallon (on an adjusted basis) in the second quarter declined 14% year over year to $2.26.

Evidently, oil prices slid 6% in the April-June period despite easing trade tensions, with a rise in OPEC supply. As fuel expenses represent a key input cost for any airline player, the downward movement in these costs naturally aided DAL’s bottom line in the second quarter.

Oil prices moved north following Israel’s attack on Iran’s nuclear facilities on June 13. However, with signs of hostilities easing between the two countries, oil prices have declined, a tailwind for airlines. In the event of this downward movement continuing, DAL’s bottom line is likely to get a lift in the third quarter from low fuel costs.  Per Dan Janki, Delta’s chief financial officer. “We expect the September quarter will be our best non-fuel unit cost performance of the year, with non-fuel unit costs flat to down compared to 2024.”

Per the International Air Transport Association, the average jet fuel cost is expected to be $86 per barrel in 2025, down from $99 in 2024. The total fuel bill in 2025 is expected to be $236 billion, down from $261 billion recorded in 2024. The projection bodes well for airlines, including Delta, currently carrying a Zacks Rank #3 (Hold).

Transportation Stocks to Consider

Investors interested in the Zacks Transportation sector may consider SkyWest SKYW and Kirby Corporation KEX, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SkyWest, founded in 1972, is based in St. George and operates regional jets for major U.S. airlines. SKYW is the holding company for SkyWest Airlines, SkyWest Charter and SkyWest Leasing, an aircraft leasing company. The Zacks Consensus Estimate for second-quarter 2025 earnings has been revised 1.30% upward in the past 60 days. SKYW’s second-quarter 2025 earnings are expected to grow 28.5% year over year. 

SKYW’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters by an average of 17.1%. SkyWest has reported impressive traffic numbers over the past few months.

Kirby has an expected earnings growth rate of 18.7% for the current year. The company has an encouraging earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 5%. Shares of KEX have rallied 10.5% year to date.

Favorable market conditions at the marine transportation unit and consistent efforts to reward shareholders through share buybacks bode well for Kirby's prospects. Kirby has a solid balance sheet. 

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This article originally published on Zacks Investment Research (zacks.com).

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