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Msg  65 of 66  at  4/13/2022 5:46:11 PM  by


Delta Air Lines Stock Is Flying After Earnings. Profitable Travel Is Taking Off.

Delta Air Lines Stock Is Flying After Earnings. Profitable Travel Is Taking Off.

Delta Air Lines stock took off on Wednesday, after the company reported a return to profitability in the month of March and outlined an upbeat outlook for revenue across the next three months.

Delta (ticker: DAL) shares soared 5% in U.S. premarket trading after the group notched a loss of $1.23 a share, on an adjusted basis, on total revenue of $9.3 billion in the first three months of 2021. Total passenger revenue was 75 percent recovered from 2019 levels, the company said.

The financial results beat out Wall Street's expectations. Brokers estimated that Delta would report a loss of $1.27 a share on sales of $8.8 billion, based on the consensus estimates of analysts surveyed by FactSet. Shares in the airline have fallen 4% so far this year as of Tuesday's close, compared with an 8% loss for the wider S&P 500 index over the same period.

"With a strong rebound in demand as Omicron faded, we returned to profitability in the month of March," said Delta CEO Ed Bastian in a statement . "We are successfully recapturing higher fuel prices, driving our outlook for a 12 to 14 percent adjusted operating margin and strong free cash flow in the June quarter."

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The company said that consumer demand accelerated through the first three months of the year, highlighted by strong performance in the spring break period. In addition, offices reopened and restrictions were lifted as the latest surge in Covid-19 cases faded, which boosted demand from business travelers and led to a stronger fare environment.

Delta expects revenue to be between 93% and 97% of 2019 levels in the current quarter ending in June, with capacity 84% restored to where it was prepandemic.

The speed of recovery far outpaces what Wall Street was hoping for.

"Investors' revenue expectations have been steadily increasing over the past few weeks, but guidance still exceeded that ever-increasing bar," said Conor Cunningham of investment group MKM Partners in a note. "Delta is having no issues pushing price as demand has surged back with leisure, corporate, and international all improving."

Cunningham also highlighted Bastian's focus on double-digit margins and free cash flow as "an encouraging sign that management views the demand recovery as a sustainable one and not just driven by the spring/summer season."

Delta is the first major U.S. carrier to report quarterly results this earnings season, setting the stage for United Airlines (UAL) and American Airlines (AAL) to follow next week.

The industry has faced turbulence this year as the travel sector simultaneously sees a firm rebound from the depths of the pandemic—which also brings challenges—and faces new headwinds.

The first quarter of 2021 certainly proved eventful. It began with one of the worst weeks in terms of cancellations in the past decade as a result of bad weather and staff shortages linked to the Omicron variant of the coronavirus that causes Covid-19. Volatility in oil prices as a result of the Russia-Ukraine war only complicated the outlook for the sector amid the prospect of higher fuel costs.

But strong demand among travelers for the spring and summer season led to consistent increases in revenue forecasts this quarter from carriers, and Delta is flying into the current quarter with tailwinds from March.

The company not only returned to profitability last month, but also saw revenue on an adjusted basis grow from 2019 levels for the first time since the start of the pandemic. Growth has been boosted by its loyalty program as well as the cargo business, Delta said. Business travelers are helping, too: Domestic corporate sales recovered 50% relative to 2019 in the last quarter, rising to a 70% recovery in March.

Delta reported adjusted net debt of almost $20.9 billion as of the end of the quarter, less than the $22 billion in debt it had forecast as of the end of 2021.

"During the March quarter we generated free cash flow, continued to pay down debt and finished the quarter with nearly $13 billion in liquidity," said Dan Janki, the group's chief financial officer. "Reducing debt is our top financial priority as we target investment-grade metrics and $15 billion of adjusted net debt by the end of 2024."


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