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Delta (DAL) Shares Up Despite Wider-Than-Expected Q4 Loss

Zacks Equity Research
·5 min read

The curse of coronavirus pandemic still remains. The health crisis having affected the global economy already rattled the airline industry so far by deflating air-travel demand drastically. It is then small wonder that Delta Air Lines DAL kicked off the fourth-quarter 2020 earnings season for the same space on not a very impressive note.

This Atlanta-GA based company incurred a loss (excluding $1.34 from non-recurring items) of $2.53 per share in the fourth quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $2.43. However, Delta reported earnings of $1.70 per share (on an adjusted basis) in the year-ago quarter, driven by high passenger revenues as air-travel demand was buoyant at that time.

Significantly, with the advent of COVID-19, things took a different turn. Due to dwindling passenger revenues (down 68% in the first nine months of 2020), Delta suffered a loss in each of the first three quarters of 2020.

With coronavirus cases noticing a spike again in the United States, passenger revenues continued to be weak in the December quarter, witnessing a 74% plunge year over year to $2,698 million. Although cargo revenues increased 10% to $204 million and revenues from other sources climbed 6% to $1,071 million, total revenues in the December quarter tanked 65% to $3,973 million. Revenues, however, topped the Zacks Consensus Estimate of $3,754.5 million.

Apart from the revenue beat, another positive aspect of the earnings report in this coronavirus-ravaged scenario was that the daily cash burn halved to $12 million (on average) in the final quarter of 2020 from $24 million in the third quarter. These factors seem to have pleased investors. Evidently, shares of the company gained in early trading despite incurring a wider-than-expected loss.

Delta Air Lines, Inc. Price, Consensus and EPS Surprise

Delta Air Lines, Inc. Price, Consensus and EPS Surprise
Delta Air Lines, Inc. Price, Consensus and EPS Surprise

Delta Air Lines, Inc. price-consensus-eps-surprise-chart | Delta Air Lines, Inc. Quote

Other Financial Details of Q4

Revenue passenger miles (a measure of air traffic) tumbled 73% to 15,183 million. With Delta making significant capacity cuts to match the coronavirus-induced sharp decrease in traffic, capacity (measured in available seat miles) contracted 44% to 36,569 million. With the fall in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down to 42% from 86% a year ago.

Passenger revenue per available seat mile (PRASM) too took a 53% dive year over year to merely 7.38 cents. Passenger mile yield decreased to 17.77 cents from 18.29 cents in the fourth quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) in the December quarter deteriorated 44% year over year to 9.66 cents.

Total operating expenses including special items declined 52% year over year to $4,831 million. Notably, expenses on aircraft fuel and related taxes plunged 64% in the reported quarter. With most of the fleet remaining grounded/under-utilized, fuel gallons consumed decreased 50% to $498 million. Average fuel price per gallon (adjusted) dropped 28% to $1.44. Non-fuel unit cost increased 8% in the reported quarter.

The airline had liquidity worth $16.7 billion at the end of the December quarter.  Notably, during the period, cash used in operations was $1.3 billion for this currently Zacks Rank #3 (Hold) company. The company anticipates receiving approximately $3 billion in the first quarter of 2021 from the U.S. Treasury under the PSP extension.

Annual Results

For the full year, the carrier’s loss (on an adjusted basis) came in at $10.76 per share. Revenues decreased 64% year over year to $17.1 billion. The Zacks Consensus Estimate was of a loss of $10.68 per share while the same for revenues was $16.74 billion.

Q1 Outlook

For the first quarter of 2021, the carrier expects total revenues to fall in the 60-65% range from the figure reported in the March quarter of 2019. Total operating expense is anticipated to be down between 35% and 40% from the year-ago quarter’s reported figure. Cost per Available Seat Mile (on an adjusted basis) is expected to be down in the 5-10% range from the number reported in the first quarter of 2019. Capital expenses are anticipated to be roughly $350 million.

Average daily cash burn is expected in the $10-$15 million range. Liquidity (including the estimated PSP amount of $3 billion) is expected in the band of $18-$19 billion. Adjusted net debt is expected to be approximately $18 billion.

Soft Air-Travel Demand: A Bane for the Entire Industry

The coronavirus-led weak air-travel demand is likely to weigh on the results of all airline players. Delta apart, waning air-travel demand is likely to dent the fourth-quarter results of fellow airline players like United Airlines UAL, Alaska Air Group ALK and Southwest Airlines LUV. While United Airlines will report results on Jan 20, Alaska Air and Southwest Airlines will release the same on Jan 26 and Jan 28, respectively.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
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