Delta Air Lines to Kick off Airline Earnings Season


Delta Air Lines is set to kick off the airline earnings season, with investors eagerly anticipating the company’s financial results. The holiday period marked a record-breaking time for air travel, capping off what was already the busiest year in U.S. aviation history. As such, Delta’s earnings report will provide valuable insights into the strength of the holiday season and offer a glimpse into the performance of the traditionally weaker first quarter.

During the holiday season, the Sunday after Thanksgiving stood out as the busiest day ever for U.S. air travel. In fact, seven out of the ten busiest days of all time occurred in 2023. However, not all airline stocks fared well during this time, as mounting costs and a softening domestic demand impacted profit margins.

Various factors converged to intensify cost pressures within the industry, encompassing new pilot pay agreements, surging fuel prices, and supply-chain challenges such as aircraft delivery delays and engine maintenance issues.

Delta, which boasts a significant presence in the booming international travel sector, emerged as an outperformer with its shares rising by 22%. In comparison, the NYSE Arca Global Airline Index experienced a 14% increase last year. It remains to be seen whether Delta’s stellar performance will persist throughout 2024, a determination that will be influenced by its upcoming earnings report.

Industry analysts project adjusted earnings per share (EPS) of $1.16 on revenue totaling $13.6 billion. Delta itself has provided EPS guidance ranging from $1.05 to $1.30. Additionally, market attention will be placed on the company’s full-year earnings, with Wall Street expecting EPS of $6.14—a figure falling within Delta’s guidance range of $6 to $6.25.

It is worth noting that there is room for an upside surprise as the airline’s latest guidance was released prior to the robust year-end holiday season. This suggests that the company’s performance may have exceeded expectations.

Importantly, Delta does not operate any Boeing 737 MAX 9 jets, thus shielding its outlook from the temporary grounding of these aircraft following the emergency incident on board an Alaska Airlines flight last week.

The MAX 9 Problems in the Spotlight as United Airlines and Alaska Air Release Earnings

Later this month, United Airlines and Alaska Air are set to release their earnings, shedding light on the ongoing issues surrounding the MAX 9 aircraft. The MAX 9 makes up roughly 20% of Alaska’s fleet and approximately 8% of United’s fleet.

As we enter earnings season, first-quarter guidance will be of utmost importance. Typically, this quarter is the weakest for airlines, but it also historically plays a crucial role in corporate travel.

The recovery of business travel holds significant weight in determining the sector’s sentiment moving forward. TD Cowen analyst, Helane Becker, highlighted this, stating, “We believe airlines started to see improvement in managed corporate travel during the quarter. We will be listening to determine whether this is forecast to continue into 2024.”

Furthermore, Becker expressed particular interest in Delta’s forward demand and pricing for long-haul international and corporate travel. Delta is TD Cowen’s “best idea” for 2024, with a Buy rating and a price target of $49, indicating a potential 16% upside from Wednesday’s closing price.

Seaport Research also considers Delta as one of its top picks for the year. However, they approach the airline’s performance in the first quarter and the stock in the near term with caution. Daniel McKenzie from Seaport Research predicts a “choppy ride” towards an earnings recovery for the sector throughout this year.

McKenzie acknowledges that although airlines are making efforts to repair margins, the significant cost shocks resulting from wage resets and supply chain bottlenecks cannot be overcome without the return of corporate travel. He suggests that corporate travel may not fully resume until 2025/26.

Overall, the upcoming earnings reports from United Airlines and Alaska Air will bring attention to the MAX 9 issues. The industry will closely monitor their performance to gauge the state of corporate travel and its impact on the sector going forward.

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