Delta Up 6% on Bullish Q1 View, Extends American Express Deal

Delta Air Lines, Inc. DAL has provided an upbeat outlook for its upcoming first-quarter-2019 earnings following which, shares of the company closed at 6% higher in yesterday’s trading session.

The carrier estimates adjusted earnings per share in the band of 85-95 cents, higher than the prior guidance of 70-90 cents. The mid-point (90 cents) of the guided range lies above the Zacks Consensus Estimate of 81 cents. This rosy earnings picture had a positive effect on the fellow airline players like United Airlines, the subsidiary of United Continental Holdings UAL, American Airlines AAL, Alaska Air Group ALK, JetBlue Airways and Spirit Airlines.

Apart from the earnings forecast, Delta’s management stated that it expects the top line to rise approximately 7% in the first quarter. Additionally, total unit revenues (TRASM) are anticipated to inch up approximately 2% (prior view was an increase in the 0-2% range). This upside was primarily driven by healthy corporate travel demand. Moreover, the contract extension between Delta and American Express boosted the first-quarter TRASM by 1 point.

Delta Air Lines, Inc. Price

Delta Air Lines, Inc. Price | Delta Air Lines, Inc. Quote

The company’s non-fuel unit costs also improved on the back of a better completion factor and cost-control measures. The metric is now envisioned to either remain flat or increase up to 0.5% (previous outlook was a rise of 1-2%). Also, the pre-tax margin is expected between 7% and 8% (past outlook: 6.5-8.5%). Capacity is estimated to expand approximately 5% year over year in the soon-to-be-reported quarter. Average fuel price is projected between $2.03 and $2.08 per gallon, lying above the past prediction of $1.95-$2.05. Additionally, the effective tax rate is projected to be 23-24% in the first quarter.

Apart from the bullish forecasts, Delta’s efforts to reward shareholders through dividends and share buybacks raise optimism on the stock. The carrier returned $1.6 billion to the stakeholders via dividends and share buybacks by accelerating its share repurchases worth $1 billion in the January-March period. Detailed results will be available on Apr 10. For the full year, the company aims to return nearly $2.5 billion to its shareholders.

Delta & American Express Contract Extension

Delta and American Express entered into an 11-year renewal agreement to extend the credit card partnership through 2029. As part of this deal, American Express will continue issuing Delta co-branded credit cards and some of its privileged card members will gain access to Delta’s airport lounges. These members will also get the benefit of transferring points from American Express’ Membership Rewards program to Delta's SkyMiles program.

This long-term partnership is expected to boost Delta’s revenues to nearly $7 billion annually by 2023 compared with $3.4 billion in 2018.
March Traffic

Delta’s consolidated traffic, measured in revenue passenger miles (RPMs), came in at 19.94 billion, up 5.3% year over year. Consolidated capacity (or available seat miles/ASMs) climbed 5.4% to 22.99 billion on a year-over-year basis. However, consolidated load factor or the percentage of seats filled by passengers contracted 20 basis points (bps) to 86.7% due to capacity expansion exceeding traffic growth.

In the first three months of 2019, this Zacks Rank #3 (Hold) company generated consolidated RPMs of 51.62 billion (up 4.8%) and ASMs of 62.42 billion (up 5%). Load factor in the period was 82.7% compared with 82.9% at the end of the same time frame a year ago. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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