(Bloomberg) — Delta Air Lines Inc. Chief Executive Officer Ed Bastian said he’ll sit out consolidation in the US aviation market and instead focus on expanding abroad through partnerships, even as high fuel prices and a transaction-minded administration stand to shake up the domestic industry.
“If opportunities come your way, you’ll consider them, but we’re not going to be proactive,” Bastian said in an interview in New York on Monday. “Unless there is a significant business rationale that stands the test of time, it’s really hard to think of taking on such a meaningful change in business strategy just because there’s a window in Washington.”
Bastian acknowledged that the political reality in the US is conducive to transactions that wouldn’t otherwise have been possible, saying “this administration is very open to consideration.” That’s also the view seized by Scott Kirby, the CEO of United Airlines Holdings Inc., who has promoted the idea of merging with American Airlines Inc., though that deal has run into political resistance and fierce opposition from American Airlines.
Bastian declined to comment about the possibility of two of the four biggest US carriers combining.
A possible industry shakeout is playing out against the backdrop of surging fuel prices that are eroding airlines’ bottom lines and weakening those already struggling. Already, Spirit Airlines was forced to cease operations, though Bastian said the ultra low-cost carrier’s problems predated the fuel-cost surge.
For now, Atlanta-based Delta is prioritizing international expansion and adding routes, including direct service to Riyadh in Saudi Arabia. The company is also expanding into India through partnership with IndiGo, relaunching flights to Hong Kong and strengthening its presence in South America and Mexico.
“That’s where we’re much more interested in investing,” Bastian said. “It’s not what part of a shrinking pie do you want to take. It’s how do you expand and how do you grow and how do you bring more relevance to your brand internationally.”
Delta has been more shielded from the fallout of higher costs because the company caters to more affluent customers more willing to pay increased ticket prices. Delta will have to absorb significant costs as fuel remains higher for longer, with airfares set to be up 10-15% for the quarter. Bastian expects the airline to have to digest roughly half of the increased fuel costs.
As a result, consumers might see another six months of elevated ticket prices, Bastian said. Even so, higher-spending consumers are still willing to shell out on trips — and that’s showing up in the bookings, Bastian said. Some travelers are also booking early in hopes of getting better pricing, he said.
That resilience is partly why Delta can achieve more than $1 billion in profit for the current quarter, Bastian said, with its premium offerings and strong balance sheet to help it through any financial turbulence.
“It doesn’t matter whether there’s geopolitical conflict, doesn’t matter whether there’s trade wars, people are not stopping,” Bastian said.
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