Delta to outperform revenue as recovery continues

The aviation industry has yet to fully recover from the COVID-19 pandemic. Travel restrictions continue to have a significant impact on long-distance travel, but travel demand is just starting to recover significantly.

However, demand is finally improving at a steady pace, driven by strong demand for leisure travel to international destinations in and around the United States (such as Mexico and the Caribbean). This first recovery is now possible. Delta Airlines (((NYSE: DAL) Not to mention analysts’ forecasts, the results for the previous quarter improved significantly beyond their own forecasts.

A step in the right direction

Delta reported second-quarter adjusted revenue of $ 6.3 billion. It was 49% lower than Q2 2019 revenue, but Delta was down from April’s forecast by 50% to 55% and beat June’s updated forecast. 50% to 52% decrease in turnover.. In addition, adjusted revenue jumped 76% compared to the first quarter of 2021.

Long-distance travel continued to cause Delta’s revenue to fall disproportionately. Transatlantic passenger revenues fell 85% from two years ago, while transatlantic passenger revenues fell 87% during this period. In contrast, domestic sales fell by 45% and sales in Latin America by 36%. Freight revenue increased 35% from the second quarter of 2019, while loyalty program revenue decreased only 9%.

Image source: Delta Air Lines.

With the improvement in the earnings environment, Delta significantly exceeded earnings expectations. Last month, CEO Ed Bastian predicted: Full service airline Second quarter adjusted pre-tax losses are reported between $ 1 billion and $ 1.2 billion. In the end, the adjusted pre-tax loss amounted to $ 881 million. This means that the adjusted loss per share will be $ 1.07. Analyst consensus demanded a loss of $ 1.40 per share.

under Generally accepted accounting principles (GAAP)Delta actually posted a significant profit of $ 652 million ($ 1.02 per share) in the prior quarter. The company contributed to this gap with pre-tax profit of $ 1.5 billion from a government subsidy to support wages in the second quarter.

Promote cash flow trends

Importantly, Delta generated $ 195 million in free cash flow in the previous quarter, even after the cancellation of the $ 2.5 billion cash wage subsidy received from the federal government. Average daily net cash ticket sales were 20% above management’s internal forecast for the quarter.

To be fair, summer travel bookings tend to generate strong seasonal cash flow in the second quarter. Still, the return to positive free cash flow about a year after the pandemic peaked last spring is an impressive achievement.

Profitability can continue to improve rapidly as business travel returns and borders reopen. Delta, on the other hand, manages fixed investments with caution in the short term.

Earlier this week it was Confirmed the plan Buy 29 used Boeing 737-900ER and lease 7 Airbus A350-900 bargain price. This will allow airlines to continue to recover their free cash flow over the next several years, while simplifying their fleets and replacing planes that retired last year.

Image source: Delta Air Lines.

Forward and up

Delta highlighted several other metrics in its earnings report to show that momentum is building. First, the volume of business travel has doubled from 20% of pre-pandemic levels to 40% of pre-pandemic levels from March to June.

Second, while Delta still primarily carries leisure travelers, demand for premium cabins is picking up faster than demand for main cabins. In short, many vacationers are willing to pay extra for an enhanced experience.

Third, a high-margin revenue stream for Delta’s credit card partners American Express Recently, it has surpassed the pre-pandemic level. American Express rewards will grow rapidly over the next several years and are poised to help recover Delta’s revenue and cash flow.

Fourth, booking activity continues to grow, despite growing concerns about COVID-19 Delta variants in recent months. Of course, this may change in the future. Nonetheless, the strength of the current recovery should increase investor confidence that Delta’s results will continue to improve, even as new variants steadily increase the number of COVID-19 cases. ..

This article represents the opinion of writers who may disagree with the “official” recommended positions of The Motley Fool Premium Advisory Services. We are diverse! Asking for investment treaties, even our own, helps us all to think critically about investing and make decisions that help us be smarter, happier, and richer. I go.


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