With Travel Demand Recovering, Delta Air Lines Posts Surprising Earnings... Outlook for Airline Stocks Remains Uncertain

Increase in Travel and Drop in Oil Prices
Delta Air Lines' Net Profit Rises 149%
Economic Slowdown and Reduced Consumption Are Stock Variables

Delta Air Lines, a major U.S. airline, posted an earnings surprise in the second quarter of this year, driven by a recovery in travel demand and a decline in oil prices. However, concerns over an economic slowdown and reduced consumer spending have prevented U.S. airline stocks from returning to pre-COVID-19 pandemic levels.

Delta Air Lines aircraft (Source: Delta Air Lines website)

On the 13th (local time), Delta Air Lines announced that its second-quarter revenue this year reached a record high of $15.58 billion, up 13% compared to the same period last year. Net income rose 149% during the same period to $1.83 billion, the largest since the fourth quarter of 2013. Earnings per share increased from $1.44 to $2.68 over the same period.

The recovery in daily life from COVID-19 led to increased travel demand, improving performance. In particular, sales of international flights and premium seats such as first class surged. Additionally, the decline in oil prices supported the improvement in results. International revenue in the second quarter increased by 61% year-over-year, while fuel expenses decreased by 22% during the same period.

Delta Air Lines expects its performance to improve further in the third quarter. Following the earnings announcement, it raised its full-year earnings per share forecast from $5?6 to $6?7. Ed Bastian, CEO of Delta Air Lines, stated, "Consumers' desire to travel will drive flight bookings," and assessed that "we are currently in the middle stage of expanding travel demand." He added, "In the long term, the airline industry is in a recovery phase that will continue for several years."

However, shareholders could not hide their disappointment. Despite the surprise earnings improvement, the stock price fell. On the day, Delta Air Lines closed slightly down, falling 0.5% compared to the previous trading day.

Although airline stocks have risen sharply this year, they have not recovered to pre-pandemic levels. Year-to-date, Delta Air Lines' stock price has increased by 45.2%, and United Airlines by 46.5%. Compared to their pre-pandemic 2019 highs, Delta Air Lines is down 21%, and United Airlines is down 40%. According to financial information firm Refinitiv Eikon, the price-to-earnings ratios (PER) of the two companies are 7 times and 5.2 times, respectively, significantly below the S&P 500 average of 19.1 times. The short-selling ratio of airline stocks has increased from 3% before the pandemic to 4.9% currently.

Despite improved airline earnings, concerns about an economic slowdown potentially reducing consumer spending have intensified, casting uncertainty over whether the stock price rally will continue. It remains to be seen whether consumers, burdened by high interest rates and inflation, will continue to open their wallets for travel. Sheila Kahyaoglu, an analyst at U.S. investment bank Jefferies, analyzed, "It is difficult to separate airlines from the macro trade."

This content was produced with the assistance of AI translation services.