Delta Sees Bright Skies Ahead After $1.2B Q1 Loss

Delta Air Lines DAL recorded an adjusted $2.3 billion loss in the first quarter but significantly grew cargo revenue and said recent improvement in domestic leisure demand has it on a path to break even on an operating basis by midyear. Without excluding special items, the loss was $1.2 billion.

The adjusted loss of $3.55 per share fell below analysts' consensus forecast of -$3.10 per share because of virus-caused downturns in January and February. Delta's adjusted operating revenue of $3.6 billion (not including its refinery) was under Wall Street's view of $3.9 billion. Still, the company finished strong in March, and officials said they expect that to carry over through the rest of the year as it turns from recovery to growth.

The airline reduced its average daily cash burn to $11 million per day from $12 million per day last quarter and said it turned cash-positive in recent weeks, generating $4 million per day in March.

"Thanks to the incredible efforts of our people, we achieved positive daily cash generation in the month of March, a remarkable accomplishment considering our middle seat block and the low level of demand for business and international travel," CEO Ed Bastian said in a statement. "If recovery trends hold, we expect positive cash generation for the June quarter and see a path to return to profitability in the September quarter as the demand recovery progresses."

Bastian said in a J.P. Morgan presentation last month that he expects Delta to soon exceed, not simply meet, 2019 margins. 

Delta's revenue was 65% lower than in 2019, considered the most accurate benchmark because last year is considered a black swan event, but cargo revenue grew 23% to $215 million. Cargo revenue also increased almost $11 million from the fourth quarter of 2020. Delta was slow to capitalize on high cargo yields in the early days of the pandemic, but has seen significant improvement in the past six to nine months. It has operated more than 2,500 cargo-only flights in the past 12 months.

The Atlanta-based carrier said it expected to narrow its pretax loss to between $1 billion and $1.5 billion this quarter and reach operating breakeven in June.

Delta gave a positive outlook. Sellable seat capacity (factoring in blocked middle seats) was down 55% in the quarter but will improve to negative 40% versus 2019 in the second quarter, and scheduled capacity will only be 32% below the 2019 level. 

"Recent demand trends are encouraging with rising confidence in air travel as vaccination rates improve and travel restrictions ease, with current domestic leisure bookings 85% recovered to 2019 levels," President Glen Hauenstein said. "In the June quarter, we expect significant sequential improvement in revenue as leisure demand accelerates into the peak summer period and we add capacity efficiently with the removal of our seat block May 1 with revenues recovering to 45 to 50 percent of 2019."  

Second Quarter Outlook (Source: Delta Air Lines)

That may not satisfy equity analysts, with shares down 2.5% on early Thursday trading, but it demonstrates that domestic U.S. carriers are likely to see strong gains in domestic travel business this year. 

In March, Delta's passenger revenue was 50% higher than in February and nearly 15 points better than normal seasonal trends as people looked to travel to sun-and-fun destinations. Corporate demand declined 80% versus the first quarter of 2019, but officials expect a strong increase by fall.

International demand, another lucrative part of the business, is also sharply down as the rest of the world deals with new COVID waves and border restrictions. But Bastian recently said he believes Delta can make gains in international market share because many global carriers suffered more without domestic business and government support that U.S. carriers enjoyed. International competitors won't have the resources to invest in route expansion and Delta could benefit, he said.

Like most airlines, Delta has significantly streamlined its cost structure during the industry's pandemic depression. But jet fuel costs are rising again as the economy reopens. Delta said it spent $100 million more on jet fuel than it projected in January. The adjusted fuel price increased 33% to $1.91 per gallon compared to the 2020 fourth quarter. 

READ: Rising jet fuel price puts extra pressure on airfreight sector

Delta retired about 200 of its oldest aircraft last year and plans to accelerate the retirement of another 200. It also has reduced staffing by 20% through early retirement initiatives last year. 

Delta finished the quarter with $16.6 billion in liquid assets, which was higher than earlier guidance because of new aircraft financing arrangements. It had $29 billion in debt but has been paying it down since September. 

The largest airline by revenue in the world lost $9 billion on an adjusted basis in 2020.

Click here for more American Shipper/FreightWaves stories by Eric Kulisch.

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