Categories Analysis, Industrials

Delta Air Lines (DAL) anticipates an acceleration in demand once vaccine distribution gains speed

For the first quarter of 2021, Delta expects revenues to be at 35-40% of the year-ago levels

Shares of Delta Air Lines (NYSE: DAL) have gained 29% over the past three months. The company reported its earnings results for the fourth quarter of 2020 a day ago wherein revenues surpassed expectations but losses came in wider than expected. The stock was down 2% in morning hours on Friday.

Looking into 2021, Delta expects demand to see a recovery as vaccinations become available and believes this recovery should enable a return to profitability by this summer.

Quarterly numbers

Total operating revenues fell 65% year-over-year to $3.9 billion as passenger revenue fell 74%. Cargo revenue increased 10% during the quarter. On a sequential basis, the revenue decline rate slowed with revenues dropping 70% in the December quarter versus 80% in the September quarter. Adjusted loss amounted to $2.53 per share compared to earnings of $1.70 per share in the year-ago period.

Travel trends

At the beginning of the quarter, Delta saw encouraging demand trends but a resurgence in the COVID-19 pandemic led to softness during the period around Thanksgiving and into December. Despite this, the peak periods outperformed the non-peak periods leading to a sequential improvement in revenues.

Delta continues to see strength in some of its leisure markets and as part of its efforts to match sellable capacity with demand, the company has deployed one-third of its domestic capacity into leisure destinations. International demand is still weak and remains limited to essential travel while corporate travel has recovered by only 10-15%.

Costs and cash burn

Delta continues to reduce its costs and has seen operating expenses decline by nearly 50% or more for three consecutive quarters. The company was able to bring down its average daily cash burn to $12 million a day during the December quarter which is half the rate of the September quarter.


For the first quarter of 2021, Delta expects revenues to be at 35-40% of the year-ago levels. Cash burn is expected to range between $10-15 million per day. The company expects to see a recovery in demand during the year as the vaccine distribution gains pace, travel restrictions begin to ease and more people opt to travel.

These factors are expected to help the cash burn levels reach a breakeven point or even improve by the second quarter. Delta expects to see a sustained recovery from the second half of 2021 which in turn should enable a return to profitability this summer.

The company is preparing for stronger demand in the March quarter by reactivating aircraft and restoring full-hour services. This is expected to increase costs by around $200 million compared to Q4. For Q1 2021, total operating expenses are projected to be down 35-40% versus the year-ago period.

Click here to read the full transcript of Delta Air Lines Q4 2020 earnings conference call

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