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Coronavirus-Hit Delta Expects 90% Decline in Q2 Revenues

Zacks Equity Research

Delta Air Lines DAL anticipates second-quarter 2020 revenues to plunge 90% as passenger volumes and revenues continue to fall. The carrier’s first quarter was “unlike any quarter in Delta’s history”. The second quarter is expected to be even worse as the coronavirus pandemic concerns rise.

Delta is burning more than $60 million in cash each day but hasn’t “seen the bottom” yet. With plummeting air-travel demand, the airline will continue to cut capacity while maintaining a network of only the essential services. In April, the Atlanta-GA based carrier will reduce capacity by at least 80% with 115,000 flight cancellations.

Meanwhile, Delta has submitted its application for the coronavirus relief grant. The financial aid to protect the interests of airline employees is praiseworthy. However, the airline’s CEO Ed Bastian feels that money would not last beyond June without their cost-saving initiatives and their efforts to raise new financing.

In-line with its cost-cutting moves, the carrier is persuading its employees to continue applying for unpaid leaves of absence. In fact, last week, the airline started offering long-term leave opportunities for six, nine and 12 months. So far, 30,000 employees have volunteered for short-term leaves of absence. With significant reduction in operations, the carrier has lowered hours for merit and hourly ground-based employees by 25% in the short-term.

Due to the coronavirus-related woes affecting the airline industry, shares of Delta have declined more than 59% since the beginning of February compared with the industry’s 57.6% depreciation.

Price Performance Since February

Downturn Sparks Sell-Off

With the airline industry reeling under the effects of coronavirus, billionaire investor Warren Buffett’s Berkshire Hathaway BRK.B sold a portion of its stake in Delta and Southwest Airlines LUV. On Apr 1 and Apr 2, Berkshire divested 12.9 million shares of Delta. The company now owns 9.2% of Delta. Additionally, it sold 2.3 million shares of Southwest during the same time period. The company now owns 9.9% of interest in Southwest.
Zacks Rank & Key Pick

Delta carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Spirit Airlines SAVE, holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Spirit has an impressive earnings history, having outperformed the Zacks Consensus Estimate in three of the last four quarters (in-line in one), the average beat being 2.8%.
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