By Rajesh Kumar Singh

CHICAGO (Reuters) -Delta Air Lines Inc on Wednesday posted a smaller-than-expected quarterly loss and forecast returning to profit in the current quarter on the back of a booming travel demand, sending its shares higher.

According to the company, strong consumer demand helped them post a solid profit for March and is also helping offset rising fuel prices with higher fares.

Delta claimed that the company is “successfully recovering” higher fuel prices. Accordingly to Delta, it anticipates generating an adjusted operating profit in the range of 12 to 14 percent and strong cash flows in the June quarter. According to the company, revenue for this quarter will increase by approximately 14-18 percentage points compared with a quarter earlier.

According to Ed Bastian, chief executive officer of Delta Airlines, “The current demand environment for our products is unprecedented.” He spoke with Reuters during an interview. The last five weeks were the most successful period in Delta’s history for bookings.

In morning trading, Delta shares rose 4.5% to $40.38

Travel demand rebounded after the Omicron coronavirus strain caused a slowdown. Some airlines reported the largest ticket sales ever recorded. According to Transportation Security Administration data, U.S. passenger volume has averaged 89% above pre-pandemic levels from mid-February.

SOARING COSTS, HIGHER FARE

However, rising fuel prices and wages are driving up the industry’s operating costs. Since Western countries placed sanctions against Russian exports, jet fuel prices have risen by over 30% in North America in the last month.

Delta’s March quarter fuel cost was 33% greater than quarter last quarter and it is forecast to go up by 15% quarter-on quarter over the three-months to June.

Although fuel is second in the cost of an airline’s labor costs, major U.S. airlines do not have any insurance against rising oil prices as European airlines. They tend to look for higher fares to offset the fuel cost.

In March, airline fares rose by 24% annually. This is one of the largest contributors to an increase in U.S. consumer price. Cowen data shows that Delta’s average airfare is up 33% compared to a year earlier.

Analysts are worried that higher airfares and inflation may reduce travel spending. Bastian explained that, while the travel industry must monitor consumer health, there is no doubt that summer will see strong demand for travel.

Bastian stated, “Right now I am optimistic that our customers will be in an extremely good position to continue traveling,”

Atlanta-based firm’s current quarter non-fuel expenses are expected to rise 17% compared with the same period in 2019. The 2019 capacity will be 84% higher than the current level.

An adjusted loss of 1.23 shares was recorded for the first quarter, against a loss estimate by Refinitiv researchers at $1.27.