Delta Air Lines (DAL) Q1 2020 earnings preview: Looking for more clarity on the COVID-19 damage

Delta Air Lines Inc. (NYSE: DAL) is slated to report first quarter 2020 earnings results on Wednesday, April 22, before the market opens. Analysts are predicting a loss of $0.74 per share on revenue of $8.9 billion. This compares to earnings of $0.96 per share on revenue of $10.4 billion reported a year ago.

Delta will be the first to report its earnings from the airline industry, which has been battered hard by the coronavirus outbreak. Airlines have cancelled their flights and reduced their capacity significantly and are set to take a hard hit to their bottom line this quarter.

Based on data from Airlines for America, the number of commercial flights worldwide dropped to 28,000/day in the week ended April 19 from 104,000/day in the week ended March 7. Air travel fell 97% in the most recent week.

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In March, Delta reduced its system capacity by 15 points. Domestic capacity was lowered by 10-15% and international capacity was cut by 20-25%. Domestic comprised 72% of total revenue in FY2019. The company also suspended its share buybacks and dividends to maintain its liquidity.

Delta is expected to see a significant drop in both passenger and cargo revenue due to the reduced demand as well as the restrictions on travel. In Q4 2019, passenger revenues increased 6% while cargo revenue fell 13%.

Also read: Delta Air Lines Q4 2019 Earnings Report

Apart from declines in capacity and TRASM, another metric that is expected to drop is load factor. Load factor measures the percentage of available capacity that is filled by passengers and helps determine profitability. The drop in load factor is a cause of concern and will continue to hurt the airline’s results if the outbreak persists.

However, last month the company stated that a decline in the fuel price provides it with approx. $2 billion of full-year expense benefit. In 2019, unlike its peers, Delta had the advantage of not owning any Boeing 737-Max aircraft in its fleet, thus insulating it from the impacts of the Max groundings.

Delta is expected to provide more clarity on the extent of the damage caused by the pandemic to its operations and also on its strategy ahead. The longer the outbreak continues, the bleaker the outlook for the rest of the year gets both for the company as well as the industry in general.

In the fourth quarter, Delta beat revenue and earnings expectations. Total operating revenue rose 6% to $11.44 billion while adjusted EPS grew 31% to $1.70.

Delta’s shares have fallen 59% since the beginning of the year and were down 3.3% in afternoon hours on Monday.