Delta expects higher fares and strong demand through the holiday season

Delta Air Lines reported a huge jump in fuel costs, but said passengers are continuing to book flights despite the significantly higher airfares.

And Delta is betting travelers will keep paying more to fly this holiday season, bolstered by higher-income customers willing to splurge on premium seats.

The airline, the first major carrier to report financial results, said its jet fuel costs jumped 60%, a $1.6 billion increase in the third quarter compared to a year ago. Fuel is the second largest cost for airlines, behind only labor.

But Delta also said passengers paid about 15% more to fly, leading to a 2% increase in adjusted net income despite the cost of higher fuel.

"To not to dent those profits, to me is incredible," said CEO Ed Bastian in an interview on CNBC early Friday after reporting third-quarter results. "In past cycles, past shocks, if we saw a 60% increase in fuel prices, we'd be flat on our back."

And Bastian said the demand to fly remains strong, despite the sharply higher fares. He expects both that strong demand, and higher fares, to continue through the rest of this year and into next year.

"We're not seeing any slowdown at all. Our consumer is resilient," he said. "The fares will be a function of what the market bears."

Much of the increase in fares and revenue comes from passengers who are willing to pay for premium seats on planes, from "comfort plus" and "premium select" in the main cabin up to first class and business class. The revenue from premium seating rose 18%. Bastian said the households in the top 40% in terms of income "are basically our customers."

"Their priority is to travel," he said. "So, from our standpoint, we the more premium we have, the more we're selling out."

Airlines can't just pass on higher costs in the form of higher fares when its costs rise unless there remains customer demand to travel. But higher fuel prices do lead airlines to cut their planned schedules, eliminating flights that were barely profitable even before the spike in fuel costs.

Despite the strong demand, the available seats on Delta during the just completed summer travel quarter was essentially unchanged from a year ago. And that limited number of seats, in the face of strong demand, led to 86% of available seats being full throughout the quarter, and upward pressure on fares.

Experts in the field agree that they're seeing strong demand to travel and higher fares through the rest of this year. Passengers are booking holiday travel earlier this year than in past years said Hayley Berg, lead economist at travel site Hopper. And they're paying more to do so.

"Thanksgiving already averaging $400 a ticket, up 31% year over year," she told CNN ahead of the Delta report. "Christmas, which is always about $50 more expensive than Thanksgiving, about $450, up 23% year over year."

Earlier this year, when the price of jet fuel fell sharply from a peak reached in April after the start of the war in Iran drove up the cost of energy, Delta and other airlines did not lower their fares. Fuel has started to climb back up, and Bastian said he expects higher fuel costs to remain through the fourth quarter.

Delta's earnings were slightly below Wall Street forecasts and it lowered its guidance for the rest of the year. Shares of Delta (DAL) and almost all other US airlines fell slightly in premarket trading.