Categories Analysis, Industrials

Delta Air Lines (DAL): A few points to keep in mind if you are considering this airline

The company expects to see strong demand during the holiday season

Shares of Delta Air Lines Inc. (NYSE: DAL) were down 1% on Tuesday. The stock has dropped 17% year-to-date and 19% over the past 12 months. Even as the airline industry continues to recover from the effects of the pandemic, helped by pent-up demand for travel, inflationary and recessionary threats continue to haunt the sector which is largely dependent on consumers’ discretionary spend. Here’s a look at some of the trends Delta Air Lines is seeing in this environment:

Demand

At a recent analyst conference, Delta said the demand for leisure travel remains robust and the company expects to see strong demand during the holiday season for both Thanksgiving and Christmas. The company also said that business travel has changed post-pandemic and although it may not go back to being the same as it was before, there is still potential for growth.

For instance, in the new work environment, people have migrated from some of the big cities to rural areas and they have to travel to the office several times a year. Also, despite the availability of video conferencing, people have a need to connect. The company estimates that currently corporate revenue is restored to 85% and it expects to see strong momentum in the coming year.

Delta Air Lines Q2 2022 Earnings Infographic

Looking at international travel trends, Delta is seeing international surpass domestic in terms of unit revenue strength and this is expected to continue into the fall. The strength in the dollar benefits Delta as about 80% of its revenues are US-dollar denominated. The company is seeing strong trends for Transatlantic travel and it expects to see strong demand for travel to places like Japan and Australia once international travel fully opens up.

Operational trends

Like its peers, Delta has faced several operational challenges over the last few months but the company has made progress in resolving many of its issues. The airline saw an improvement in its operations from June through August and thus far in September with the mainline completion factor at 99.96%.

Looking at pricing, Delta does not expect a slight increase in prices to have a major impact on travel trends. The company also believes it will benefit from its diversified revenue stream which is focused on the entire travel experience and not just on the seat charge.

Fleet

Delta is refreshing its fleet in order to improve fuel efficiency and customer experience. As part of these efforts, the company is adding the Boeing 737 MAX aircraft to its fleet, which will complement its A321neo fleet. Delta is ordering the 737-10 model, which will begin delivery in 2025, and is expected to be 20-30% more fuel efficient than the planes it will replace. The order for 100 737-10 aircraft with the option for 30 more will increase the size of Delta’s 737 family to more than 300 aircraft by the end of the decade.

Outlook

For the third quarter of 2022, Delta expects total revenue to be up 1-5% and capacity to be down 15-17% compared to the same period in 2019. CASM-Ex is expected to be up around 22% versus Q3 2019 and operating margin is expected to range between 11-13%.

Click here to read the full transcript of Delta Air Lines Q2 2022 earnings conference call

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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