Delta Signals Travel Is Going Strong Despite Recession Fears

Delta Airlines Inc DAL was the first to report earnings on Thursday, April 12th. After it posted a wider quarterly loss than expected, Delta's shares dropped 1.7%, pulling down even American Airlines Group Inc AAL whose shares sank 9% as it revealed a weaker than expected guidance.

Delta

Delta reported an adjusted revenue of $11.84 billion that came below analyst estimates that averaged $11.99 billion. For the quarter that ended on March 31st, Delta made a net loss of $363 million, or 57 cents per share, partially due to a new four-year pilot contract. But despite the cost of the 34% raise it gave to pilots, skies are brighter compared to last year’s quarter when net loss amounted to $940 million, or $1.48 per share as travel demand was still recovering. When excluding one-time items, Delta made a net income of $163 million, or 25 cents per share compared to 2022’s first quarter loss of $748 million, or $1.23 per share.

Excluding fuel, unit costs rose 4.7% on the year, partly due to winter storms that grounded flights. March domestic sales are back to pre-COVID 2019 levels as corporate bookings are undergoing recovery and loyalty program receiving a boost through the American Express Company AXP partnership that contributed $1.7 billion in revenue which translates to an increase of 38% from 2022’s comparable quarter. Moreover, Delta revealed that first class revenue has outpaced the one generated by standard seats. 

Forecasting Record Advance Bookings 

Despite missing estimates, the Atlanta-based carrier issued second quarter guidance that topped analyst estimates, signaling that despite a weakening macroeconomic environment, travel demand is going strong. Delta is expecting sales in the undergoing quarter to rise 15% to 17% compared to last year’s comparable quarter with adjusted operating margins of 16% and adjusted EPS in the range between $2 and $2.25. Refinitiv survey of analysts estimated revenue growth of 14.7% and EPS of $1.66. Delta plans to increase capacity 17% compared to 2022’s second quarter as it expects a record to be achieved in advance summer bookings. 

American Airlines 

Delta reported its earnings a day after American Airlines issued a weaker than expected earnings guidance for the undergoing quarter. American Airlines now expects first quarter EPS to be in the range between $0.01 and $0.05 which is above its prior breakeven outlook, yet below analyst estimates that averaged $0.06. Total revenue per available seat mile is expected to rise 25.5% which is the midpoint of its prior gain forecast that was in the range between 24% and 27%.

United Airlines will issue its earnings report on Tuesday, while a week after it will be joined by American Airlines and the struggling Southwest Airlines Co LUV. Delta’s results reflect its strong pricing power and signal that travel demand is going strong, the latter which will be confirmed by the above reports as U.S. carriers tend to make a significant portion of their annual revenue during the spring and summer season.  

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.