Delta's Q1 revenue was 'better than we thought': Analyst

Delta reported a wider than expected loss in the first quarter. Cowen Senior Research Analyst Helane Becker joins Yahoo Finance Live to discuss.

Video Transcript

- Let's move on to another company we're watching in the market today, Delta posting a $1.2 billion quarterly loss. Revenue was down 60% when you compare it from the same period back in 2019, pre-COVID times. But there is some optimism. The airline says it expects to break even in June, as travel demand picks up. Let's bring in Helane Becker, Cowen senior research analyst. Helane, you know, we've been talking to you about the pickup in activity that we are anticipating, especially in domestic travel. What do you make of the numbers that came out today, and what stood out to you?

HELANE BECKER: Hi, Akiko. First, thanks for having me on the show again. I think the revenues were $200 million better than we thought for the first quarter, 4.1 billion versus our number at 3.9 billion. So I would say that was one thing that stood out as being a positive. And I think that was really demand in March, especially towards the end of the month, that got that going because since-- really since mid-February, we've seen a lot of million people plus per day traveling. So we think domestic leisure is probably within 85% to 90% of pre-pandemic levels. It's revenue and pricing that's not, of course.

And a lot of that is corporate, and a lot of that is international. So international, excluding Mexico, Caribbean, and maybe some other Latin leisure destinations, like Costa Rica, are not back to pre-- or those ones are back sort of to pre-pandemic levels. That's where we're seeing demand. But Europe is not. You're still seeing, you know, lockdowns and quarantine rules. And Pacifica's not. So excluding those leisure destinations in the markets I just mentioned, you've got international still down about 90%. And we don't think that comes back before fourth quarter of this year at the absolute earliest.

I think the other thing-- oh, I'm sorry, Zack, were are you going to say something?

- Well, no, I mean, when we talk about all of that, that's obviously been kind of the thrust of differentiating these airlines from one another, one of the reasons we always talk about Southwest being different with their domestic emphasis, shall we say. But when we're projecting further out, I think a lot of people were harping on the milestone in March when it comes to the average daily cash burn hitting 11 million, turned positive to 4 million per day. And you talk about how much cash these airlines had been losing.

But looking ahead, I mean, even looking, to your point, in leisure travel, it seems like prices are back to basically where they were pre-pandemic now if you want to book a flight out there. So what is it looking like over the next few months if we are expecting kind of a similar trajectory in this return here for a Delta when it comes to kind of how they turn things around in the next couple quarters?

HELANE BECKER: OK, yes, that's a very good question. And what I was going to say was jet fuel costs are up a lot. Delta is forecasting 185 to 195 for the second quarter, as are we. I think our single point number was around $1.90. And I think the way to think about this is that with higher fuel costs comes higher airfares. So we definitely see that trend. But remember, a big part of revenue is corporate and international. And without that-- and we-- as I said, we don't see either one really coming back this summer-- it's going to be hard for revenues to grow significantly. I think Delta is forecasting down 50%, 55% versus two years ago. And we're about down 45 to 50.

So we're kind of in that ballpark, maybe a little more optimistic because of what you just said. We definitely think that the trend in airfares is going to increase, especially as the booking curve lengthens. And I think that's another thing to look at, is the fact that, because people are getting vaccinated and things are opening up, I think they're feeling more confident in booking travel for the summer months. And I think that's what you see happening. And as that occurs, you're seeing airfares trend higher, to Zack's point. And it's in markets like Florida, coastal cities where you have beaches, national parks, where you can be outside and do stuff.

- Yeah, a lot of people looking at their summer vacations in some of those spots already. Helane, we've talked about this before. Who do you think, in terms of airline, stands to benefit the most from this pickup in demand? Is Southwest still your top pick?

HELANE BECKER: So yes and no. So we are still focused-- so the yes part is yes, we are still focused on domestic leisure airlines. So Spirit, Southwest, Alaska, JetBlue, Allegiant, those are all stocks that we like and would invest in today. The issue for Southwest, which is the no part, is that the stock is back to pre-pandemic levels, but revenues aren't. So we think it should pause in here, giving people plenty of time to build a position. And then fundamentals will catch up to the stock price, and then over the next one year, it should move higher. So that's kind of the typical analyst yes or no answer.

- OK. We'll have to leave it there. Helane, it's always good to get your take. Helane Becker, Cowen senior research analyst.