Delta Navigated The Industry Turbulence Better Than Expected

Despite persistent inflation, Delta Air Lines Inc DAL swung to a profit during the first quarter fueled by record sales. Unlike United Airlines UAL and Southwest Airlines Co LUV, Delta has been less affected that some of its major rivals whose operations were disrupted by problems that are troubling The Boeing Company BA. Boeing has been plagued by far more than safety and quality control issues as the recent incident reveals serious company culture challenges. Meanwhile, 80% of United Airlines fleet comes from Boeing and Southwest is the most hurt by the criticism of Boeing that makes 100% of its fleet.  Whether or not they have Boeing or Airbus jets, all US airlines were expected to post losses for the first quarter that is typically the least profitable period. Delta delivered a pleasant surprise as the short-term travel gaps were filled with increased demand for business travel.

Travel has been prioritized as a discretionary investment in wellbeing.

For the quarter ended on March 31st, adjusted revenue rose 6% YoY to $12.56 billion, excluding refinery sales. Interestingly, domestic unit revenue rose 3% from a year ago with airplane loads at records for the quarter, traditionally a slow period for travel. 

More importantly, Delta made $37 million, or 6 cents per share, swinging from the loss it reported for last year’s comparable quarter that amounted to $363 million, or 57 cents per share. Delta’s adjusted earnings amounted to$288 million, or 45 cents a share, surpassing LSEG’s estimate of $235 million  or 36 cents per share.

Guidance

Delta guided for thinner profit margins in the current quarter with second-quarter earnings in the range between$2.20 and $2.50 per share, surpassing LSEG’s average estimate of $2.23 per share, on the back of a 7% rise in revenue, which is also above analyst estimates. 

As for the full year forecast, due to business travel having improved in the last quarter and solid demand expected to continue, Delta reiterated its prior guidance of $6 to $7 in earnings per share and free cash flow in the range from $3 billion to $4 billion.

Amid a tough quarter for U.S. airlines during which the aircraft issues of Boeing forced many carriers to rethink their long-term plans, Delta posted strong and significantly improved bottom line. The Atlanta-based carrier remains focused on efficiency, while also slowing down hiring. Delta CFO Dan Janki emphasized that growth is normalizing and as the airline undergoes a period of optimization, it aims to restore its most profitable core hubs and achieve efficiency gains.

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