Connect with us

Business News

Higher labor costs dent Delta’s profit forecast but travel demand is still strong

Published

on

Delta Air Lines Airbus A330neo or A330-900 aircraft with neo engine option of the European plane manufacturer, as seen departing from Amsterdam Schiphol AMS EHAM International airport.

Nicolas Economou | NurPhoto | Getty Images

Delta Air Lines fourth-quarter profit and revenue topped expectations on Friday, but shares fell on the carrier’s outlook for the first quarter.

Delta said it expects to earn 15 cents to 40 cents a share on an adjusted basis in the first quarter of 2023 and for its sales to increase 14% to 17% over the same quarter of 2019, with capacity down 1% from four years earlier.

But it said unit costs, stripping out fuel, will likely increase 3% to 4% from 2022, including for labor and rebuilding its network. Delta’s pilots union is reviewing a contract proposal this week that includes raises topping 30% over four years.

Delta reiterated its full-year 2023 earnings estimate of $5 to $6 a share.

The company’s shares were down more than 6% in early trading Friday.

Here’s how Delta performed in the fourth quarter, compared with Wall Street expectations based on Refinitiv consensus estimates:

  • Adjusted earnings per share: $1.48 vs. $1.33 expected.
  • Adjusted revenue: $12.29 billion, excluding refinery sales, vs. $12.23 billion expected.

The airline generated $13.44 billion in total sales for the final three months of 2022, 17% higher than the $11.44 billion it brought in three years earlier.

High costs ate away at some of Delta’s profits, but its net income still totaled $828 million, down from $1.1 billion in the same three-month period of 2019, but on 9% less flying than three years earlier. It was a sign of travelers’ willingness to continue booking, even at high fares, which more than made up for the increased expenses.

Delta’s operating costs rose 19% in the fourth quarter from 2019, including a $2.8 billion fuel bill, up 42% from 2019.

Delta CEO Ed Bastian said in a news release that the carrier “rose to the challenges of 2022, delivering industry-leading operational reliability and financial performance.”

Bastian told CNBC that demand for premium products has remained robust. In the airline’s release, it said that premium revenue, which includes seats in first class, rose 13% in the last quarter, 8 points above sales growth from the main cabin.

Delta has been cracking down on crowding in its luxury airport lounges, the result of strong demand for rewards credit cards and travelers with elite status. Next month it will raise the requirements for entry, and this week, said it is curbing employee access to Sky Clubs.

Airlines have largely been upbeat about the fourth quarter, despite concerns about a recession and weakness from some retailers and other businesses. On Thursday, American Airlines hiked its revenue and profit forecast for the period, sparking a broad rally in the sector.

That was even after severe winter weather disrupted flights coast to coast over the year-end holidays, prompting mass cancellations. Southwest Airlines in particular struggled to recover and said its meltdown could cost it more than $800 million. American and Southwest are scheduled to report on Jan. 26.

“There was a lot of customers looking for airlines given some of the Southwest challenges, and we got a benefit from that,” Bastian said in an interview with CNBC’s “Squawk Box.

Correction: Delta had a fourth-quarter fuel bill of $2.8 billion, up 42% from 2019. An earlier version misstated the timing.

Business News

Lucid to cut 1,300 workers amid signs of flagging demand for its EVs

Published

on

Lucid Motors CEO Peter Rawlinson poses at the Nasdaq MarketSite as Lucid Motors (Nasdaq: LCID) begins trading on the Nasdaq stock exchange after completing its business combination with Churchill Capital Corp IV in New York City, New York, July 26, 2021.

Andrew Kelly | Reuters

Struggling EV maker Lucid said in a regulatory filing on Tuesday that it plans to cut about 18% of its workforce, or roughly 1,300 employees, as part of a larger restructuring to reduce costs as it works to ramp up production of its Air luxury sedan.

Lucid said it will incur one-time charges totaling between $24 million and $30 million related to the job cuts, with most of that amount being recognized in the first quarter of 2023.

News of the job cuts was first reported by Insider earlier on Tuesday. Lucid’s shares closed down over 7% on Tuesday following the Insider report.

In a letter to employees, CEO Peter Rawlinson said the job cuts will hit “nearly every organization and level, including executives,” and that affected employees will be notified over the next three days. Severance packages will include continued healthcare coverage paid by Lucid, as well as an acceleration of equity vesting, Rawlinson wrote.

Lucid ended 2022 with about $4.4 billion in cash on hand, enough to last until the first quarter of 2024, CFO Sherry House told CNBC last month ahead of the company’s fourth-quarter earnings report. But there have been signs that demand for the high-priced Air has fallen short of Lucid’s internal expectations, and the company may be struggling to convert early reservations to sold orders.

Lucid said that it had more than 28,000 reservations for the Air as of Feb. 21, its most recent update. But it also said that it plans to build just 10,000 to 14,000 vehicles in 2023, far fewer than the roughly 27,000 that Wall Street analysts had expected.

With Lucid’s factory currently set up to build about 34,000 vehicles per year, the company has warned of continuing losses.

“As we produce vehicles at low volumes on production lines designed for higher volumes, we have and we will continue to experience negative gross profit related to labor and overhead costs,” House said during Lucid’s earnings call on Feb. 22.

Lucid hasn’t yet announced a date for its first-quarter earnings report.

Continue Reading

Business News

Virgin Orbit extends unpaid pause as Brown deal collapses, ‘dynamic’ talks continue

Published

on

NEWQUAY, ENGLAND – JANUARY 09: A general view of Cosmic Girl, a Boeing 747-400 aircraft carrying the LauncherOne rocket under its left wing, as final preparations are made at Cornwall Airport Newquay on January 9, 2023 in Newquay, United Kingdom. Virgin Orbit launches its LauncherOne rocket from the spaceport in Cornwall, marking the first ever orbital launch from the UK. The mission has been named Start Me Up after the Rolling Stones hit. (Photo by Matthew Horwood/Getty Images)

Matthew Horwood | Getty Images News | Getty Images

Virgin Orbit is again extending its unpaid pause in operations to continue pursuing a lifeline investment, CEO Dan Hart told employees in a company-wide email.

Some of the company’s late-stage deal talks, including with private investor Matthew Brown, collapsed over the weekend, people familiar with the matter told CNBC.

Hart previously planned to update employees on the company’s operational status at an all-hands meeting at 4:30 p.m. ET on Monday afternoon, according to an email sent to employees Sunday night. At the last minute, that meeting was rescheduled “for no later than Thursday,” Hart said in the employee memo Monday.

“Our investment discussions have been very dynamic over the past few days, they are ongoing, and not yet at a stage where we can provide a fulsome update,” Hart wrote in the email to employees, which was viewed by CNBC.

Brown told CNBC’s “Worldwide Exchange” last week he was in final discussions to invest in the company. A person familiar with the terms told CNBC the investment would have amounted to $200 million and granted Brown a controlling stake. But discussions between Virgin Orbit and the Texas-based investor stalled and broke down late last week, a person familiar told CNBC. As of Saturday those discussions had ended, the person said.

Separately, another person said talks with a different potential buyer broke down on Sunday night.

The people asked to remain anonymous to discuss private negotiations. A representative for Virgin Orbit declined to comment.

Hart promised Virgin Orbit’s over 750 employees “daily” updates this week. Most of the staff remain on an unpaid furlough that Hart announced on Mar. 15. Last week, a “small” team of Virgin Orbit employees returned to work in what Hart described as the “first step” in an “incremental resumption of operations,” with the intention of preparing a rocket for the company’s next launch.

Virgin Orbit’s stock closed at 54 cents a share on Monday, having fallen below $1 a share after the company’s pause in operations.

Sign up here to receive weekly editions of CNBC’s Investing in Space newsletter.

Virgin Orbit developed a system that uses a modified 747 jet to send satellites into space by dropping a rocket from under the aircraft’s wing mid-flight. But the company’s last mission suffered a mid-flight failure, with an issue during the launch causing the rocket to not reach orbit and crash into the ocean.

The company has been looking for new funds for several months, with majority owner Sir Richard Branson unwilling to fund the company further.

Virgin Orbit was spun out of Branson’s Virgin Galactic in 2017 and counts the billionaire as its largest stakeholder, with 75% ownership. Mubadala, the Emirati sovereign wealth fund, holds the second-largest stake in Virgin Orbit, at 18%.

The company hired bankruptcy firms to draw up contingency plans in the event it is unable to find a buyer or investor. Branson has first priority over Virgin Orbit’s assets, as the company raised $60 million in debt from the investment arm of Virgin Group.

On the same day that Hart told employees that Virgin Orbit was pausing operations, its board of directors approved a “golden parachute” severance plan for top executives, in case they are terminated “following a change in control” of the company.

Continue Reading

Business News

Historic UAW election picks reform leader who vows more aggressive approach to auto negotiations

Published

on

Supporters wave signs during an address at the Time Warner Cable Arena in Charlotte, North Carolina, on September 5, 2012 on the second day of the Democratic National Convention (DNC).

Mladin Antonov | AFP | Getty Images

DETROIT – United Auto Workers members have ousted their president in the union’s first direct election, ushering in a new era for the prominent organized labor group ahead of negotiations later this year with the Detroit automakers.

The union’s new leader will be Shawn Fain, a member of the “UAW Members United” reform group and local leader for a Stellantis parts plant in Indiana. He came out ahead in a runoff election by hundreds of votes over incumbent Ray Curry, who was appointed president by union leaders in 2021.

Fain, in a statement Saturday, thanked UAW members who voted in the election. He also hailed the election results as a historic change in direction for the embattled union, which he says will take a “more aggressive approach” with its employers.

“This election was not just a race between two candidates, it was a referendum on the direction of the UAW. For too long, the UAW has been controlled by leadership with a top-down, company union philosophy who have been unwilling to confront management, and as a result, we’ve seen nothing but concessions, corruption, and plant closures,” Fain said.

Curry, who previously protested the narrow election results, said in a statement that Fain will be sworn in on Sunday and that Curry is “committed to ensuring that this transition is smooth and without disruptions.”

“I want to express my deep gratitude to all UAW staff, clerical support, leaders and most of all, our union’s active and retired members for the many years of support and solidarity. It has been the honor of my life to serve our great union,” Curry said.

More than 141,500 ballots were cast in the runoff election that also included two other board positions, a 33% increase from last year’s direct election in which neither of the presidential candidates received 50% or more of the votes.

The election was overseen by a federal monitor, who did not immediately confirm the results. The election results had been delayed several weeks due to a run-off election as well as the close final count.

Shawn Fain, candidate for UAW president, is in a run-off election with incumbent Ray Curry for the union’s highest-ranking position.

Jim West for UAW Members United

Fain’s election adds to the UAW’s largest upheaval in leadership in decades, as a majority of the union’ s International Executive Board will be made up of first-time directors who are not part of the “Administration Caucus” that has controlled the union for more than 70 years.

Fain and other members of his leadership slate ran on the promise of “No corruption. No concessions. No tiers.” The last being a reference to a tiered pay system implemented by the automakers during recent negotiations that members have asked to be removed.

The shuffle follows a yearslong federal investigation that uncovered systemic corruption involving bribery, embezzlement, and other crimes among the top ranks of the UAW.

Thirteen UAW officials were convicted as part of the probe, including two past presidents. As part of a settlement with the union in late 2020, a federal monitor was appointed to oversee the union and the organization held a direct election where each member has a vote, doing away with a weighted delegate process.

For investors, UAW negotiations with the Detroit automakers are typically a short-term headwind every four years that result in higher costs. But this year’s negotiations are anticipated to be among the most contentious and important in recent memory.

Fain has said the union will seek benefit gains for members, advocating for the return of a cost-of-living adjustment, or COLA, as well as raises and job security.

The change in the UAW comes against the backdrop of a broader organized labor movement across the country, a pro-union president and an industry in the transition to all-electric vehicles.

Continue Reading

Trending