Delta Air Lines, Passenger Demand Recovery... Stock Price Rise Expectations Up

Published 17 Apr.2022 10:13(KST)

[Asia Economy Reporter Minji Lee] Delta Air Lines recorded first-quarter results that exceeded market expectations, and it is predicted to deliver solid performance due to the recovery in passenger demand.

On the 17th, as of the 14th, Delta Air Lines' stock price stood at $42.36, marking a 14.02% increase over the past month. This is analyzed as growing expectations for performance as passenger revenue shows a clear recovery trend.

Delta Air Lines, Passenger Demand Recovery... Stock Price Rise Expectations Up

The company posted $9.35 billion in the first quarter, growing 125.3% compared to the same period last year and exceeding market expectations by 5%. Operating loss was $783 million, turning to a loss compared to the previous quarter. Adjusted earnings per share recorded -$1.23.

A notable point in this year’s performance is the recovery trend in passenger revenue. The company also stated that it succeeded in turning profitable in March due to the recovery in passenger demand. Overall flight capacity in the first quarter recovered to 83%, transportation to 75%, and the load factor reached 74.7%. By region, demand recovery was seen mainly in domestic routes (82.9%) and South American routes. Business travelers recovered about 70% on domestic routes and 50% on international routes compared to the first quarter of 2019. Additionally, premium seats showed stronger revenue recovery than economy seats. Jet fuel prices surged 105.7% compared to the same period last year due to rising fuel costs. However, unit costs increased by only 1.8%, indicating cost control was maintained.

The company expects second-quarter capacity to recover to 84% compared to the second quarter of 2019. Revenue is expected to recover to 93-97%. Discussions with the U.S. government regarding the lifting of in-flight mask mandates and COVID-19 testing requirements are positive, and the faster recovery of Atlantic routes compared to domestic routes in April in the corporate travel sector is raising performance expectations.

The average jet fuel price in the second quarter is expected to rise about 20% compared to the previous quarter. The forecasted price is $3.20?3.25 per gallon, the highest since the fourth quarter of 2014. However, the company has a cost advantage over competitors through its own refinery business, enabling hedging at about $0.20 per gallon. Minjin Bang, a researcher at Eugene Investment & Securities, explained, “This suggests that fares could increase significantly. The company believes it can pass on the rising fuel costs through ticket price hikes, and the expected adjusted operating margin for the second quarter is 12-14%, showing improvement compared to 9.4% in the previous quarter.”

Delta Air Lines is expected to be spotlighted as a beneficiary stock of the reopening trend going forward. The second-quarter supply guidance (84% recovery) is presumed to be conservatively presented considering various factors. Jaeyim Kim, a researcher at Hana Financial Investment, analyzed, “Considering the trend since March, there is a high possibility of exceeding the guidance. Although the rebound in Asian routes may require more time, considering the momentum of a full-scale rebound in overseas routes centered on the Atlantic routes, attention should be paid to airline stocks as reopening beneficiaries. Delta Air Lines, a leading premium airline, is judged to have high upside potential.”