Earnings Preview: Delta Air Lines stays buoyant on travel recovery

After a prolonged slowdown, the airline industry entered recovery mode last year and the uptrend continued in the early months of 2023. For Delta Air Lines Inc (NYSE: DAL), 2022 was a mixed year marked by both weather-related disruptions and operational improvements. The company is betting on brand value and customer loyalty to execute the growth strategy and extend its competitive advantages.

Buy DAL?

Delta’s stock had an upbeat start to the year but it began losing steam a month ago and slipped to a five-month low, before making a modest recovery. With passenger traffic recovering rapidly amid widespread relaxation of curbs, the company looks set to return to its pre-COIVD performance soon. The good news is that the recovery would translate into an improvement in shareholder value. DAL is a safe investment option that has the potential to reward investors handsomely in the long term. The favorable valuation and 2.8% dividend yield, which is relatively high and above the S&P 500 average, make the stock more attractive.

The fast-paced market reopening, improving COVID scenario in China and post-pandemic rebound in business travel bode well for the aviation industry. However, the companies will have to use a significant portion of their cash flows for repaying loans, since most airlines including Delta have accumulated huge debts in recent years. Rising interest rates and high fuel costs add to the problem.   

Q1 Report On Tap

It is estimated that Delta earned $0.32 per share in the first quarter of 2023 — a significant improvement from the prior-year period when the company suffered a loss of $1.23 per share. The rebound represents an estimated 48% growth in revenues to $12.05 billion. The company is scheduled to publish the results on April 13, before markets open.

From Delta’s Q4 2022 earnings conference call:

“We have invested in the customer experience at every stage of the travel journey, from the continued refresh of our fleet with next-generation far more fuel-efficient aircraft to generational airport rebuilds and technology investments that are providing our employees better tools and our customers a more seamless experience. And we continue to attract and partner with leading brands to grow our SkyMiles ecosystem and further enable customers to use their SkyMiles during travel and beyond. Heading into 2023, our momentum continues.”

Key Numbers

The company ended a pandemic-induced losing streak more than a year ago and has constantly enhanced revenues and profitability since then. In the fourth quarter, earnings topped expectations after three consecutive misses but declined in double-digits to $1.48 per share. Meanwhile, passenger revenues grew 6% annually, driving up total operating revenues by 17% to $13.4 billion. The top line also benefited from strong growth in the non-core operating segments.

After opening Tuesday’s session at $34.48, Delta’s stock slipped in the early hours and traded close to its 52-week average. In the past 30 days, it has decreased by about 13%.