Delta (DAL) rises on bullish 2020 outlook; partners with private jet startup Wheels Up

After reporting positive third-quarter results in October, executives at Delta Air Lines (NYSE: DAL) had expressed hope for closing the fiscal year on an upbeat note, supported by the steady growth in passenger traffic.

Two months later, a statement from CEO Ed Bastian on Thursday said the aviation firm is on track to deliver earnings of $6.75 to $7.75 per share in fiscal 2020, aided by a 4-6% revenue growth. It is also expected that the positive performance would translate into significant cash flow generation. The management intends to return up to 70% of free cash flow to shareholders while continuing to deploy capital to reinvest in the business.

Also read: Boeing Q3 earnings miss despite revenue beat

“As the industry leader, Delta is well-positioned for long-term growth, with a focus on extending our unmatched competitive advantages, enhancing our global scale and growing brand preference,” said Bastian. The market responded overwhelmingly to the announcement and the company’s stock gained around 2% early Thursday.

Wheels Up Deal

Separately, Delta announced a strategic partnership with Wheels Up, an aviation startup that operates private jets, to acquire a minority stake in the latter. The company said the transaction would not have any immediate impact on its financial results, and maintained the outlook for fiscal 2019. The deal will also mark Delta’s exit from its luxury jet charter business.

New Biz Model

The transaction, which is scheduled to complete early next year, is expected to create the largest fleet of private aircraft in the world. The move is in line with the company’s strategy of shifting focus to non-core areas through partnerships. Meanwhile, the financial terms of the deal are not known.

Related: Delta Q3 2019 Earnings Conference Call Transcript

The latest developments assume significance in the wake of growing concerns about the health of the American aviation industry, against the backdrop of disruptions caused by the grounding of Boeing 737 Max planes and uncertainties related to the US-China trade war.

Stock up

Delta Air Lines’ shares, which set new records consistently over the years, rose 15% in the past twelve months. The stock made strong gains early Thursday, recovering from the recent slump.