Will Delta Air Lines Forecast for This Year Be Come True?
5 minutes for reading
US airlines suffered seriously from the COVID-19 pandemic and had to address the government to avoid bankruptcy. In 2020, their stock prices lost more than 70% and have not yet recovered, alongside with the passenger flow.
Currently, the Federal Reserve System (Fed), attempting to beat inflation, is gradually bringing the US economy to a recession, which might drain out the passenger flow even more. However, on 13 April the director-general of Delta Air Lines Inc. (NYSE: DAL) Edward Bastian surprised many market participants by his optimistic forecasts. Read what exactly he said and how the shares of the company and other representatives of the sector reacted to his words.
Air transportation in the US in 2021-2023 inclusive
In 2021, when anti-coronavirus vaccines became widely available to people, the situation with air transportation started improving. Countries were opening borders one after another, and the demand for travel livened up. This let the US air transportation market demonstrate one of the highest recovery speeds worldwide.
According to the International Air Transport Association (IATA), passenger traffic in the region dropped 11.13% from the figure of 2019 and grew 45.5% from the statistics of 2020. The growth of the market was mostly based on an improvement in the domestic flights statistics that had recovered to 95% from the 2019 level. In 2021, the US passenger flow reached 48% of the 2019 figure, while the seat load factor grew 58%. The North American market got a serious boost from the high vaccination speed, softening of travel limitations, and high demand for flights among the population. At the same time, there were clearly issues with providing the necessary level of personnel, including pilots and flight attendants.
In 2022, the trend persisted: North American airlines reported a yearly increase in traffic by 130.2% compared to the statistics of 2021. The passenger flow rose to 86% of the 2019 level and the seat load factor – to 69%. According to the IATA, in January 2023 the US passenger flow reached 85% of the January 2019 statistics, in February it reached 87%, and in March – 90% of the figures from the same months in 2019.
Delta Air Lines report for Q1, 2023
In the first quarter, Delta Air Lines Inc. saw a decrease in the net loss by 61.4% from the statistics of the same period in 2022, to 363 million USD or 0.57 USD per share.
Gross earnings in January-March rose 36.5% to 12.8 billion USD; the revenue from passenger transportation increased by 50.7%, reaching 10.4 billion USD, that from cargo transportation lost 27.7%, amounting to 209 million USD. An increase in the revenue from business class trips grew by 58% to 4 billion USD, and that from economy class trips – by 51% to 5.2 billion USD.
Domestic flights brought Delta Air Lines Inc. 7.6 billion USD, flights to Europe – 1.2 billion USD, to Latin America – 1.1 billion USD, to Asia – 441 million USD, which reveals growth from the figures of January-March 2022 by 27%, 38%, 50%, and 79%, respectively.
Delta Air Lines forecast for Q2 and the full 2023
In the company, they expect that in the second quarter of 2023 the revenue will reach 13.75-14.37 billion USD (which will be a record for this airline), and the EPS will amount to 2-2.25 USD. The full-year revenue is forecast to grow 15-20%, the EPS – to reach 5-6 USD per share, and the free money flow is expected to exceed 2 billion USD. The management hopes that by the end of the year the passenger flow will have reached the level of 2019, and this will be a full recovery of the company after the crisis of COVID-19.
Being asked whether Delta Air Lines Inc. is afraid of a possible decrease in air transportation due to the menacing recession, the director-general answered that there was no such trend, and the demand for air transportation, especially in the business class, remained high. He supposed that the passenger flow could drop in other branches.
How Delta Air Lines shares reacted to the report and forecast
The forecast voiced by Edward Bastian on 13 April was a surprise for investors, and on the same day over the trading session the stock price of Delta Air Lines Inc. demonstrated growth by 4%, pulling in tow the quotes of other representatives of the sector.
However, at the closing of the trading session the stock dropped 1.1% - market participants might not have believed the forecasts of the director-general. The market could decide to wait for the forecasts and reports of American Airlines Group Inc. (NASDAQ: AAL), United Airlines Holdings Inc. (NASDAQ: UAL), and Southwest Airlines Co. (NYSE: LUV) that will be presented in the nearest future. From them they hope to get some confirmations of Bastian’s words.
According to the IATA data above, the air transportation market is recovering. As Delta Air Lines Inc. management forecasts, the company will be able to reach the pre-pandemic levels this year. Soon the reports and forecasts of other airlines will be published; time will show whether the view of Delta Air Lines Inc. director-general will get confirmed. If the statistics come out strong, they can have a good influence on the stock price of many representatives of the sector.
* – Past performance is not a reliable indicator of future results or future performance.
The material presented and the information contained herein is for information purposes only and in no way should be considered as the provision of investment advice for the purposes of Investment Firms Law 87(I)/2017 of the Republic of Cyprus or any other form of personal advice or recommendation, which relates to certain types of transactions with certain types of financial instruments.