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Earnings preview: Softening fuel cost, high demand to lift Delta Air Lines in Q1

Shares of Delta Air Lines (DAL) gained sharply this week after the aviation firm raised the first-quarter earnings guidance and renewed its credit card partnership with American Express (AXP). Since the announcement has fuelled positive sentiment in the sector, the market will be closely following the earnings report to be published on April 10 before the opening bell.

Market watchers forecast that earnings would move up 12% to $0.83 per share in the March quarter, which has been revised down by four cents since last month. Revenues are seen growing by 3.6% annually to $10.32 billion.

The company Tuesday revised up the guidance for adjusted earnings to the range of $0.85 per share to $0.95 per share from the earlier outlook of $0.70-$0.90 per share. The upward revision has brought cheer to investors as it came at a time when the majority of the airline companies expect a lackluster year ahead.

Delta Air Lines Q4 revenue up 5%
Delta Air Lines Q4 2018 earnings infographic

The management currently expects revenue to grow 7% in the to-be-reported quarter as the company continues to witness solid demand. Also, the cost-cutting efforts and improved operational efficiency have translated into a decline in operating expenses.

The company this week revised up the guidance for adjusted earnings to the range of $0.85 per share to $0.95 per share

In the fourth quarter of 2018, Delta’s adjusted earnings jumped 41% annually to $1.30 per share amid stable travel demand, which was partially offset by higher fuel costs. There was a 7% growth in passenger revenues, which account for the lion’s share of the company’s total revenues.

Earlier this week, Delta said traffic and capacity increased 5.3% and 5.4% respectively in March, compared to last year. Around 17.6 million passengers traveled in Delta flights last month, an increase of 6.2%. As per a renewed partnership agreement, the company has extended its association with American Express until 2029, for credit card services.

Among the other leading airlines, American Airline (AAL) and United Continental (UAL) are expected to publish their first-quarter earnings reports on April 25 and April 16, respectively.

Aviation firms are set to benefit this year from the moderation in oil prices, after a challenging 2018 when high fuel costs ate into their profits. The growing demand for air travel, aided by the steady upswing in the economy and Americans’ increasing spending power, is another tailwind for the industry.

Delta Air Lines (DAL) shares rose about 3% in the early trading hours on Wednesday, after closing the previous session sharply higher. The stock gained nearly 14% so far this year and 7.2% in the past twelve months.

 

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