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Delta Beats Big on Earnings: What To Expect From Remaining Airlines

Daniel Laboe

Delta Air Lines DAL illustrated an impressive beat on both top and bottom-lines, propelling the share price up over 4% in morning trading. DAL’s reported EPS surpassed analysts’ estimates by more than 20%, representing a year-over-year appreciation of 31% and its largest EPS beat in almost 6 years. The firm also rose its 2020 Q1 guidance. I expect that this stock will move from its Zacks Rank #2 (Buy) to a #1 (Strong Buy) once analysts have adjusted their models for the positive earnings.

Delta kicked off earnings season for the airlines on an optimistic note, but was the firm’s positive earnings and outlook a product of inherent advantages, or were there industry-wide implications? The answer is a combination of the two.

In Delta’s press release this morning, it associated its significant EPS beat with stronger than anticipated revenue, lower fuel costs, and a 9 cent gain related to its unwinding partnership with GOL. Lower fuel costs and some of the increased revenue can be associated with an industry-wide positive. More passengers and lower costs per passenger. Top US Airline stocks including United Airlines UAL, American Airlines AAL, and Southwest LUV are up over 1% in trading this morning.

737 MAX

The critica difference between Delta and its biggest competitor is that Delta doesn’t fly the Boeing 737 MAX aircraft. This is a significant advantage considering that this grounding is negatively impacting the capacity of all the other major airlines. Delta’s increase in revenues is partially a product of Delta taking advantage of the other airlines’ loss in capacity from the 737 MAX grounding. Southwest is the most exposed with 34 737 MAXs and 310 orders, followed by American who has 24 737 MAXs and 100 orders. The full Q4 impact of this plane’s grounding on the other airlines will show in their reports and earnings calls in the coming weeks.

Upcoming Airline Earnings

United is releasing its earnings Tuesday, January 21st, after the bell, and according to Zacks Consensus estimates, analysts are expecting an EPS of $2.65 on sales of $10.87B. American Airlines is reporting on before the market opens Thursday, January 23rd, and according to Zacks Consensus estimates, analysts are anticipating an EPS of $1.24 on sales of $11.36B. Southwest is also reporting before the bell on Thursday, and EPS estimates stand at $1.11 on revenues of $5.72B.

Below is a full chart of what to expect in the coming airline earnings season.

Take Away

Delta’s robust earnings this morning has created positive sentiment for the broader airline industry, but we shouldn’t get overly optimistic about the upcoming earnings because much of the upside was Delta specific. We will see how much of an impact the Boeing 737 MAX’s grounding has on the rest of the space.

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