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Delta's (DAL) Q3 Loss Wider than Expected, Revenues Lag
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As the coronavirus pandemic rattled the airline industry by reducing air-travel demand drastically, it was small wonder that Delta Air Lines (DAL - Free Report) kicked off the third-quarter 2020 earnings season for the same space on a disappointing note.
This Atlanta-GA based company incurred a loss (excluding $5.17 from non-recurring items) of $3.30 per share in the September quarter, wider than the Zacks Consensus Estimate of a loss of $3.14. Meanwhile, Delta reported earnings of $2.32 per share (on an adjusted basis) in the year-ago quarter, driven by high passenger revenues as air-travel demand was buoyant at that time.
However, with the advent of COVID-19, things took a different turn. Due to dwindling passenger revenues (down 60% in first-half 2020), Delta suffered a loss in each of the first two quarters of 2020.
With the health peril showing no signs of subsiding, passenger revenues continued to be weak in the September quarter as well with a plunge of 83% year over year to $1,938 million. Cargo revenues declined 25% to $142 million. Revenues from other sources inched up only 2% to $982 million. Consequently, total revenues in the September quarter tanked 76% to $3,062 million, falling short of the Zacks Consensus Estimate of $3,091.3 million.
In fact, Delta's president Glen Hauenstein warned that “it may be two years or more” for the revenue stream to normalize. Due to its efforts to simplify its fleet structure, Delta reduced its aircraft purchase commitments by more than $5 billion through 2022.
As a result of this lackluster earnings report, shares of Delta shed more than 3% of value in early trading at the time of writing.
Delta Air Lines, Inc. Price, Consensus and EPS Surprise
Revenue passenger miles (a measure of air traffic) tumbled 83% to 11,545 million. With Delta making significant capacity cuts to match the coronavirus-induced sharp decrease in traffic, capacity (measured in available seat miles) contracted 63% to 28,290 million. With the fall in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down to 41% from 88% a year ago.
Passenger revenue per available seat mile (PRASM) too took a 55% dive year over year to merely 6.85 cents. Passenger mile yield decreased to16.78 cents from 17.07 cents in the third quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) in the September quarter deteriorated 43% year over year to 9.35 cents.
Total operating expenses including special items declined 10% year over year to $9,448 million. Notably, expenses on aircraft fuel and related taxes plunged 78% in the reported quarter. With most of the fleet remaining grounded/under-utilized, fuel gallons consumed moderated 66% to $391 million.
Average fuel price per gallon (adjusted) dropped 36% to $1.25. Operating cost per available seat mile increased to 33.4 cents from 13.85 cents a year ago due to the capacity contractions. Non-fuel unit cost escalated 57% in the reported quarter.
The airline had liquidity worth $21.6 billion at the end of the September quarter. Notably, during the period, cash used in operations was $2.6 billion for this currently Zacks Rank #4 (Sell) company. Daily cash burn averaged $18 million for the month of September and $24 million for the third quarter. This represented an improvement from the second quarter wherein daily cash burn averaged $43 million. The reading was $27 million for the month of June. In the September quarter, Delta received $701 million under the payroll support program of the CARES Act through grants and loans.
Soft Air-Travel Demand: A Bane for the Entire Industry
The coronavirus-led weak air-travel demand is likely to weigh on the results of all airline players. Delta apart, waning air-travel demand is likely to dent the third-quarter results of fellow airline players like United Airlines (UAL - Free Report) , American Airlines (AAL - Free Report) and Southwest Airlines (LUV - Free Report) . While United Airlines will report results on Oct 14, American Airlines and Southwest Airlines will release the same on Oct 22.
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Delta's (DAL) Q3 Loss Wider than Expected, Revenues Lag
As the coronavirus pandemic rattled the airline industry by reducing air-travel demand drastically, it was small wonder that Delta Air Lines (DAL - Free Report) kicked off the third-quarter 2020 earnings season for the same space on a disappointing note.
This Atlanta-GA based company incurred a loss (excluding $5.17 from non-recurring items) of $3.30 per share in the September quarter, wider than the Zacks Consensus Estimate of a loss of $3.14. Meanwhile, Delta reported earnings of $2.32 per share (on an adjusted basis) in the year-ago quarter, driven by high passenger revenues as air-travel demand was buoyant at that time.
However, with the advent of COVID-19, things took a different turn. Due to dwindling passenger revenues (down 60% in first-half 2020), Delta suffered a loss in each of the first two quarters of 2020.
With the health peril showing no signs of subsiding, passenger revenues continued to be weak in the September quarter as well with a plunge of 83% year over year to $1,938 million. Cargo revenues declined 25% to $142 million. Revenues from other sources inched up only 2% to $982 million. Consequently, total revenues in the September quarter tanked 76% to $3,062 million, falling short of the Zacks Consensus Estimate of $3,091.3 million.
In fact, Delta's president Glen Hauenstein warned that “it may be two years or more” for the revenue stream to normalize. Due to its efforts to simplify its fleet structure, Delta reduced its aircraft purchase commitments by more than $5 billion through 2022.
As a result of this lackluster earnings report, shares of Delta shed more than 3% of value in early trading at the time of writing.
Delta Air Lines, Inc. Price, Consensus and EPS Surprise
Delta Air Lines, Inc. price-consensus-eps-surprise-chart | Delta Air Lines, Inc. Quote
Other Financial Details of Q3
Revenue passenger miles (a measure of air traffic) tumbled 83% to 11,545 million. With Delta making significant capacity cuts to match the coronavirus-induced sharp decrease in traffic, capacity (measured in available seat miles) contracted 63% to 28,290 million. With the fall in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down to 41% from 88% a year ago.
Passenger revenue per available seat mile (PRASM) too took a 55% dive year over year to merely 6.85 cents. Passenger mile yield decreased to16.78 cents from 17.07 cents in the third quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) in the September quarter deteriorated 43% year over year to 9.35 cents.
Total operating expenses including special items declined 10% year over year to $9,448 million. Notably, expenses on aircraft fuel and related taxes plunged 78% in the reported quarter. With most of the fleet remaining grounded/under-utilized, fuel gallons consumed moderated 66% to $391 million.
Average fuel price per gallon (adjusted) dropped 36% to $1.25. Operating cost per available seat mile increased to 33.4 cents from 13.85 cents a year ago due to the capacity contractions. Non-fuel unit cost escalated 57% in the reported quarter.
The airline had liquidity worth $21.6 billion at the end of the September quarter. Notably, during the period, cash used in operations was $2.6 billion for this currently Zacks Rank #4 (Sell) company. Daily cash burn averaged $18 million for the month of September and $24 million for the third quarter. This represented an improvement from the second quarter wherein daily cash burn averaged $43 million. The reading was $27 million for the month of June. In the September quarter, Delta received $701 million under the payroll support program of the CARES Act through grants and loans.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Soft Air-Travel Demand: A Bane for the Entire Industry
The coronavirus-led weak air-travel demand is likely to weigh on the results of all airline players. Delta apart, waning air-travel demand is likely to dent the third-quarter results of fellow airline players like United Airlines (UAL - Free Report) , American Airlines (AAL - Free Report) and Southwest Airlines (LUV - Free Report) . While United Airlines will report results on Oct 14, American Airlines and Southwest Airlines will release the same on Oct 22.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot stocks we're targeting >>