Last quarter, Delta CEO Ed Bastian was touting record quarterly and full-year revenue, along with a strong growth forecast for the year ahead.

Three months later, the airline is sounding a more bearish tone, with the war in Iran throwing a wrench in the industry’s plans.

In its first quarter earnings, Delta beat and maintained its guidance, but warned that it was too early to update its full-year 2026 projections.

But with good news on the company’s overall health, CEO Ed Bastian made a series of predictions as to how the recent war affects how the domestic airline will meet its original guidance.

Fares are going up (duh)

Delta reported that its fuel costs rose 8% year-over-year to $2.591 billion, but with the price of jet fuel more than doubling since the Iran conflict started per data from IATA, CEO Ed Bastian says that the company’s base assumption is that fares are going to continue rising.

Delta is in a uniquely strong position since it operates its own oil refinery in Pennsylvania, which is going to help it an offset of $300 million in the coming quarter, thanks to cost savings from handling its own refining.

However, controversially though, airfares might not come back down once the conflict is over. In remarks made on the company’s Q1 earnings call, Bastian admitted that the airline will keep higher fares in place, even if fuel prices do settle down. In other words, the airline concedes that it could use the Iran conflict to permanently raise airfares.

Delta will cut back on growth, routes

Delta also plans to pale back on its growth plans, particularly on the fringes of its schedule. On the call, the company said it would cut “capacity in off-peak times”, such as edge-of-day, redeye, or midweek flights.

The thinking is that reducing the number of flights per day and packing capacity into higher-demand flying times will lead to more profitable flights. In anticipation of weaker demand from higher prices, Delta’s plan is effectively to restrict supply. That will keep planes full and sustain profits.

Premium travelers will deal with it

Bastian’s comments about prices have drawn controversy, but there is some rationalization: he insists that the airline’s more premium customers are “immune” to higher prices.

He adds that the airline’s premium customers have continued to book, adding that they are “candidly immune or becoming more immune to the headlines and not delaying their investments in the experience economy.”

He adds that it’s because the impacts on premium customers from the conflict in the Middle East has been marginal; that they are not “feeling affected by that.” That could be because the stock market has soldiered higher on anything resembling good news, largely ignoring long-term implications of a regional conflict with global economic repercussions.

There could be consolidation

On the heels of a JetBlue sale, CEO Ed Bastian also touched on “structural reform” of the airline industry. For those not versed in industry jargon, he means consolidation, or M&A.

Bastian said that higher oil prices could force “a considerable portion of the industry” to consolidation, similar to what happened between 2009 and 2011. He adds, “I anticipate higher fuel prices will cause much more significant structural reform than we’ve seen over this period.”

That’s a bold statement, especially considering the scale of the airline M&A after the Great Recession and the enormity of disruption caused by the Covid-19 pandemic.

He also adds, “However that plays out, it’s going to be of benefit to Delta.”

Bag fees and fuel surcharges are here already

Airlines are a “follow the leader” industry, so what one airline does will likely be true of its peers, especially in the U.S. market.

Take recent bag fee increases for example: Budget carrier JetBlue kickstarted the effort to raise bag fees, which was quickly taken up by airlines United, Southwest, American, and, of course, Delta.

Notably, no U.S. airlines have imposed fuel surcharges which are more popular in overseas, but that could change domestically if the industry trend is any indication.

In Europe, Air France-KLM and Scandinavian Airlines (SAS) recently hiked its fuel surcharges. In Asia, Hong Kong-based Cathay Pacific and Japan’s All Nippon Airways (ANA) and Japan Airlines are also raising charges.

In some cases, these charges cannot be avoided, even if you book with miles. They will simply charge a separate cash value to recoup the higher cost of jet fuel in the most-affected markets.

When will it end?

The month-long conflict in Iran has had global repercussions, many of which won’t be solved even if Iran, the U.S., and its allies were to miraculously agree to end the conflict today. Even despite a two-week ceasefire, investors are right to be skeptical of progress.