Company / Analytics

Analytics, 15 July 2021

Delta Airlines earnings and outlook stocks

Airline stocks have been in focus on expectations that increased COVID-19 vaccination rates will lead to a sharp uptick in air travel, especially in the United States. On Wednesday, Delta Air Lines and American Airlines (AAL) both reported positive cash flow in the second quarter, ending cash burn for the first time since the pandemic high.

Delta reported its first quarterly profit since late 2019 thanks to federal payroll aid. On late Tuesday, American Airlines said it could post a “slight” pretax profit for the second quarter and that revenue will likely come in higher than expected.

Delta is the first of the U.S. carriers to report second-quarter results. American, United Airlines, and Southwest Airlines are scheduled to report next week.

Delta Earnings

Delta Air Lines on Wednesday reported second-quarter revenue that topped analyst expectations. Delta saw an increase in leisure and business travel bookings, after more than a year of pandemic lockdowns.

The airline posted a profit of $652 million, snapping a five-quarter streak of losses, where it only relied on government stimulus aid to stay afloat. Delta expects to be profitable in the second half of the year without relying on government aid.

Delta reported adjusted results per share loss of $1.07 versus an expected loss of $1.38 a share. The figure strips out $1.5 billion in federal payroll aid and other adjustments.

It reported total revenue of $7.13 billion, above expectations of $6.22 billion in revenue. Revenue for the three months ended June 30 came in at $7.13 billion, down 43% from the $12.54 billion it generated during the same period in 2019 but more than the $6.22 billion analysts expected.

Delta had $17.8 billion in liquidity at the end of the quarter and total debt and lease obligations of $29.1 billion. Late Monday, Delta announced it was adding used aircraft to grow its fleet: leasing seven Airbus A350 wide-body planes and buying 29 Boeing 737-900ERs. It expects 2021 gross capital expenditures to total around $3.2 billion.

Delta Airlines Outlook

Delta expects to be profitable in the second half of the year without relying on government aid. However, Delta said its third-quarter capacity will be down 28% to 30%. Its capacity was down 32% in the second quarter, though the airline was blocking middle seats until May 1.

For the third quarter, Delta said it expects revenue will be down 30% to 35% over 2019 when it brought in $12.56 billion.

The airline said domestic leisure travel has completely recovered and that business travel demand was also recovering. Average daily net cash sales — tickets purchased minus refunds — doubled over the first quarter and were 20% higher than its initial forecast.

Delta is the first of the U.S. carriers to report second-quarter results. American, United Airlines, and Southwest Airlines are scheduled to report next week.

The industry is upbeat on recovery. American Airlines late Tuesday said it expected second-quarter revenue to be down roughly 37.5% compared to the second quarter of 2019. That’s better than an earlier forecast for a roughly 40% decline. The airline said it expected a per-share adjusted loss of $1.67-$1.76. but it said it eked out positive cash flow, barely, for the first time since the pandemic. Both the updated earnings-per-share and revenue forecasts were better than what Wall Street expected.

Still, the sharp rise in demand has been rocky for airlines — and passengers. Thousands of employees took leaves of absence or early retirement packages at executives’ urging last year, leaving some carriers short of trained pilots, customer service agents, and other employees as demand spiked. The federal aid prohibited airlines from laying workers off outright.

Delta said last month it will ramp up the hiring of more than 1,000 reservation agents and plans to hire roughly 1,000 pilots over the next year. Fuel costs have also increased to the highest levels since early 2020.

Delta late Monday announced it was adding used aircraft to grow its fleet: leasing seven Airbus A350 wide-body planes and buying 29 Boeing 737-900ERs. Delta said its 2021 gross capital expenditures would total around $3.2 billion.

How did Delta stock move?

Airline stocks have fallen over the past several weeks. Last month, several European nations began issuing travel restrictions to curb the spread of the delta variant.

Delta shares fell nearly 2% in early-afternoon trading Wednesday despite the positive earnings and were trading at $40.58 at the time of writing. The reverse course can be attributed to the grim outlook presented by the Delta variant of the Covid-19.

Among other airline stocks, American Airlines stock advanced jumped 6% to 21.26, United Airlines climbed 2.4%, and Southwest Airlines added 1.3%.

Should you buy Delta Airline shares?

The current consensus among 22 polled investment analysts is to buy stock in Delta Air Lines Inc. This rating has held steady since July when it was unchanged from a buy rating.

The 19 analysts offering 12-month price forecasts for Delta Air Lines Inc have a median target of 55.00, with a high estimate of 73.00 and a low estimate of 44.00. The median estimate represents a +35.43% increase from the last price of 40.61, according to CNN Business.

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