Delta's Bullish Earnings, Outlook Back Signs Of Strong Airline Demand

Delta Air Lines ( DAL ) on Thursday reported fourth-quarter earnings that easily topped views and dramatically raised its 2018 profit guidance, adding to indications of more robust demand across the industry.

[ibd-display-video id=3076727 width=50 float=left autostart=true] The results follow earlier signs from American Airlines ( AAL ) and United Airlines ( UAL ) that their pricing power has improved.

In Q4, Delta's earnings per share climbed 17% to 96 cents, beating estimates for 88 cents, as revenue increased 8% to $10.245 billion, topping views for $10.16 billion. Passenger unit revenue grew 4.2% vs. Delta's forecast for an increase around 4%.

The results exclude a one-time charge of $150 million from the inclusion of foreign earnings and revaluation of deferred tax assets and liabilities, following tax reform.

Delta now sees 2018 EPS at $6.35-$6.70, up from a prior view of $5.35-$5.70 and well above the consensus for $5.75, on total revenue growth of 4%-6%. Its corporate tax rate should hit 22%-24%.

For Q1, Delta sees EPS of 60-80 cents, below consensus for 82 cents, on unit revenue growth of 2.5%-4.5%, with capacity up about 3%.

"We enter 2018 with significant momentum and every entity delivering positive passenger unit revenue for the first time in five years, driven by a robust demand environment and improving business fares," said Delta President Glen Hauenstein in a statement.

CFO Paul Jacobson said Delta will focus this year on getting unit cost trajectory back in line with Delta's long-term 0%-2% target, with Q1 expected to be the peak of nonfuel expense growth.

Delta shares surged 4.8% to 58.52 on the stock market today , rising above buy range. American climbed 4.9% to 56.42, clearing a 53.84 buy point, though its relative strength line still lags. United rallied 4.6% after jumping 6.7% Wednesday, and Southwest Airlines ( LUV ) added 3%, extended beyond buy range once again.

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Fourth-quarter forecasts this week from American and United have signaled that ticket prices, from their standpoint, have improved, meaning they've been able to charge passengers more or discount less. American also said that close-in demand domestically had been higher than anticipated.

But higher fuel costs could hurt margins this year. Costs have become more of a focus for analysts in recent months - after pay raises and fuel pushed expenses higher last year - and they may keep a tighter lens on how well airlines can manage their nonfuel expenses.

But recent tax cuts are helping the airlines' customers, especially big corporations, and Bank of America Merrill Lynch analysts said earlier this week that Delta, United and American should see more business and international travel.

More domestic-focused carriers like Southwest, however, will likely be outperformed by the big three legacy airlines, the analysts added.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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