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Delta Air Lines (DAL) Posts Q2 Loss, Suffers Weak Load Factor

As the coronavirus pandemic rattled the airline industry by reducing air-travel demand drastically, it was small wonder that Delta Air Lines DAL kicked off the second-quarter 2020 earnings season for the same space on a disappointing note.

This Atlanta-GA based company incurred a loss (excluding $4.58 from non-recurring items) of $4.43 per share in the June quarter, wider than the Zacks Consensus Estimate of a loss of $3.97. Meanwhile, Delta reported earnings of $2.35 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.

However, with the advent of COVID-19, things took a different turn. Due to dwindling passenger revenues (down 18.2% in the first quarter of 2020), Delta posted its first quarterly loss since 2010  in the March quarter, this year.

The effect of coronavirus was more severe in the second quarter due to deeper plunge in passenger revenues. This is because the COVID-19 pandemic started affecting the metric, mainly since March. Consequently, the entire second quarter (April-June months) bore the brunt of this meltdown in air-travel demand as opposed to only a single month in the last reported quarter.

Notably, passenger revenues slumped 94% year over year in the June quarter to $678 million with enplaned passengers plummeting 93% due to low demand for air travel. Cargo revenues declined 42% to $108 million. Revenues from other sources decreased 31% to $682 million. Consequently, total revenues in the June quarter tanked 88.3% to $1,468 million but surpassed the Zacks Consensus Estimate of $1,400.8 million.

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

Revenue passenger miles (a measure of air traffic) tumbled 94% to 3,621 million. With Delta making significant capacity cuts to match the coronavirus-induced sharp decrease in traffic, capacity (measured in available seat miles) contracted 85% to 10,596 million. With the fall in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down to 34% from 88% a year ago. Passenger revenue per available seat mile (PRASM) too took a 60% dive year over year to merely 6.4 cents. Passenger mile yield increased to18.73 cents from 18 cents in the second quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) in the second quarter deteriorated 36% year over year to 11.1 cents.

Total operating expenses including special items declined 40% year over year to $6,283 million. Notably, expenses on aircraft fuel and related taxes plunged 84% in the reported quarter. With most of the fleet remaining grounded/under-utilized, fuel gallons consumed moderated 85% to 165 million. Average fuel price per gallon (adjusted) rose 4% to $2.16. Total adjusted operating expense decreased 53 % owing to lower capacity- and revenue-related expenses and prudent cost management. Per Paul Jacobson, Delta’s chief financial officer, “We expect to achieve a similar 50 percent year-over-year reduction in the September quarter despite a sequential increase in capacity, reflecting the increased variability we have achieved in our cost structure.”

The airline had liquidity worth $15.7 billion at the end of the June quarter.  Notably, during the quarter, this currently Zacks Rank #3 (Hold) company raised $11 billion in new liquidity. Daily cash burn was $43 million on average in the reported quarter. However, the same for the June quarter was $27 million, reflecting a 70% decline from the levels witnessed in late March.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

Upcoming Releases

Investors interested in the broader Transportation sector are keenly awaiting second-quarter 2020 earnings reports of key players, namely United Parcel Service UPS, United Airlines UAL and Union Pacific UNP. While UPS will report second-quarter earnings on Jul 30, United Airlines and Union Pacific will announce the same on Jul 21 and Jul 23, respectively. All three stocks carrying the same Zacks Rank as Delta at present.

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