Delta Air Lines (DAL): Key takeaways from the Q2 earnings report

Delta Air Lines Inc. (NYSE: DAL) reported better-than-expected results for the second quarter of 2021 on Wednesday. The carrier is the first of its group to release results and a few of its peers are set to follow suit next week. Despite the encouraging numbers, the stock was down 1.3% in midday trade. Here are the key highlights from the earnings announcement:

Q2 numbers

GAAP operating revenue fell 43% to $7.1 billion compared to Q2 2019 but beat market estimates. On a GAAP basis, the company finally delivered a profit of $652 million, or $1.02 per share, after a string of losses caused by the pandemic. Adjusted net loss per share amounted to $1.07, which was narrower than analysts’ projections.

Demand trends

Domestic leisure travel has recovered completely to reach the levels seen in 2019 while business and international travel are picking up. The rising demand for air travel drove a 76% sequential improvement in adjusted operating revenue in Q2. Adjusted total unit revenue increased 45% sequentially while system yields improved 4.8% and load factors improved 24 points.

Delta saw a normalization in the booking curve as customers continued to make future travel plans. Average daily net cash sales in Q2 doubled compared to Q1. Average daily net cash sales refers to tickets purchased less tickets refunded. The company also saw corporate recovery pick up speed during the quarter with a steady improvement in volumes.

Domestic corporate volumes went from 20% recovered in March to 40% recovered in June, helped by higher vaccination rates, reopening of offices and an improvement in demand for business travel. Delta expects volumes to be close to 60% recovered by September based on these trends.  

Although Delta believes international travel demand will be choppy and uneven, it is seeing strong bookings to Europe. The company expects the widespread distribution of vaccines to help in fueling the international travel recovery but believes that new COVID variants continue to pose a risk.

Cash position

Cash flow from operations amounted to $1.9 billion in Q2, including the benefit from the payroll support programs. Free cash flow was $1.5 billion. Delta ended the quarter with $17.8 billion in liquidity, including $2.6 billion in undrawn revolver capacity.

Fleet

Delta will add seven A350s and 29 737-900ER used aircraft to its fleet which will enter service over the next two years starting in summer 2022. The company is working on improving its unit costs by replacing older, less efficient aircraft. Delta will lease the aforementioned A350s and acquire the 737-900ERs and this is expected to drive incremental capex of around $700 million in the latter half of this year.

Outlook

For the third quarter of 2021, Delta expects total revenue to be down 30-35% from the same period in 2019. Capacity is expected to be down 28-30% while CASM-ex is expected to be up 11-14%. Fuel price is estimated to range between $2.05-2.15 per gallon. Capital expenditures are expected to be around $800 million.

Delta expects strong leisure demand to continue through the fall and winter while international and business travel picks up. Domestic corporate volumes are expected to recover between 55% and 60% of 2019 levels by the end of the third quarter, up from 40% at the end of the second quarter.

Click here to read the full transcript of Delta’s Q2 2021 earnings conference call