U.S. airlines are likely to retain the airfare increases that they successfully implemented over the spring and early summer, even if fuel prices continue to moderate, Delta CEO Ed Bastian said.
Airfares were up 26.7% year over year in May, according to Consumer Price Index data. Delta's yield (revenue per each mile a passenger flies) was up 12% in the second quarter, the company said in its Q2 earnings report Friday.
Fare increases this spring were driven by the sudden spike in fuel costs after the start of the U.S.-Iran war and Iran's subsequent closure of the Strait of Hormuz. Delta's fuel costs per gallon were up 75% in Q2.
But the price of U.S. jet fuel has dipped substantially from well over $4 per gallon during much of the spring to an average of $3.10 currently, according to Argus, a provider of market intelligence on commodities. Delta is anticipating its jet fuel expenses for the third quarter will be up a more manageable 40% year over year.
Historically, airfares have dipped when fuel prices fall, generally because one or more carriers decide to go after increased market share by dropping prices. Other airlines are then forced to follow.
Bastian said things are different now.
"The industry landscape has entirely changed," he said during Delta's earnings call.
Discount carriers do not wield the power they once did to drop prices and force the major airlines to follow. The sector has contracted, with Spirit Airlines ceasing operations in May. Overall, ultralow-cost carriers are slated to fly 28.5% less capacity this quarter than a year earlier, according to the latest analysis by TD Cowen.
Meanwhile, some discount airlines are losing money, Bastian said, burdened high labor costs, airport fees, technology costs and a tight market for new aircraft. Though he didn't name them, Frontier and JetBlue are the two U.S. airlines that are struggling. According to Delta's own analysis, the low end of of the U.S. market still needs to increase fares by 5% to break even.
"There's nothing to be gained by trying to grow in that environment," Bastian said. "The opportunity has to be in finding ways to secure higher revenues, not higher market share."
Bastian also said that during early periods of fuel volatility, airlines that did fuel hedging, notably Southwest, could leverage their discount to target market share. But across the board, U.S. airlines have stopped hedging, removing an incentive for carriers to take the lead on price-cutting.
Delta beats the Street
Delta reported solid second-quarter results, exceeding most of its guidance as demand remained strong and fuel costs came in lower than anticipated.
The carrier reported operating revenue of $19.76 billion, up 19% from last year and exceeding analyst expectations by $950 million, according to investment website Seeking Alpha.
Driven by fuel prices, Delta's operating expenses for the quarter increased 23%, $17.89 billion.
The airline reported operating income of $1.86 billion, down from $2.1 billion in the second quarter of 2025. Delta's operating margin was 9.4%. Net income was $1.6 billion.
For Q3, the airline forecasts an 11% to 13% operating margin. Demand remains robust and fuel prices have dropped from Q2 levels.