Delta Signals Travel Is Going Strong Despite Recession Fears

Delta Airlines Inc (NYSE: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 (NASDAQ: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 (NYSE: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 (NYSE: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.