Delta Air Lines’ (DAL Quick QuoteDAL - Free Report) fourth-quarter 2022 earnings (excluding 19 cents from non-recurring items) of $1.48 per share beat the Zacks Consensus Estimate of $1.29 per share. DAL reported earnings of 22 cents per share a year ago, dull in comparison to the current scenario, as air-travel demand was not so buoyant then.

Delta reported revenues of $13,435 million, which also surpassed the Zacks Consensus Estimate of $13,030.3 million. Driven by the high air-travel demand, total revenues increased more than 41.87% on a year-over-year basis.

In the fourth quarter of 2022, passenger revenues, accounting for 81% of the total revenues, increased 6% to $10,889 million from the levels recorded in the comparable quarter of 2019. In fourth-quarter 2022, 75% of the total passenger revenues came from the domestic markets. Domestic and international passenger revenues in the December quarter increased 7% and 5%, respectively, from fourth-quarter 2019 actuals.

Cargo revenues increased 33% from the fourth-quarter 2019 actuals. Other revenues increased to $2,298 million from $1,007 million three years ago. Adjusted operating revenues (excluding third-party refinery sales) came in at $12,292 million, up 8% from the fourth-quarter 2019 levels.

Despite the earnings and revenue beat, shares of DAL declined in pre-market trading. The downside was due to the weaker-than-expected earnings per share guidance for the March quarter.

DAL, currently carrying a Zacks Rank #3 (Hold), expects first-quarter 2023 earnings per share in the 15 cents - 40 cents band. The Zacks Consensus Estimate is currently pegged at 45 cents per share.  The downbeat guidance is mainly due to high costs. 

In first-quarter 2023, cost per available seat miles (adjusted) or non-fuel unit costs are expected in the 13.64 cents-13.77 cents range. Per Dan Janki, Delta’s chief financial officer "For the March quarter, we expect non-fuel unit costs to increase 3 to 4 % year-over-year, including a full quarter impact from labor cost increases and finalizing the rebuild of our network for the peak summer period”.

Other Aspects of the Q4 Earnings Report

Adjusted operating margin was 11.6%. This was the third successive quarter when DAL generated a double-digit operating margin since 2019. DAL remains on track to achieve its target of more than $7 of adjusted earnings per share for 2024.

Below we present all figures (in % terms) compared with the fourth-quarter 2019 results.

Revenue passenger miles (a measure of air traffic) tumbled 10% to 50,476 million. Capacity (measured in available seat miles) contracted 9% to 59,506 million. Load factor (percentage of seats filled by passengers) was down to 85% from 86% in the comparable quarter of 2019.

Passenger revenue per available seat mile increased 17% to 18.30 cents. Passenger mile yield increased to 21.57 cents from 18.29 cents in the fourth quarter of 2019. On an adjusted basis, total revenue per available seat mile increased 19% to 20.66 cents in the December quarter.

Total operating expenses, including special items, escalated 19% to $11,965 million. Aircraft fuel expenses and related taxes surged 42% to $2,849 million in the reported quarter.

Fuel gallons consumed contracted 13% to $869 million. Average fuel price per gallon (adjusted) surged 61% to $3.20. Non-fuel unit cost (adjusted or CASM-Ex) increased 13% to 13.14 cents in the reported quarter, mainly due to 9% lower capacity.

The airline had liquidity worth $9.4 billion at the end of the December quarter (including $2.9 billion under undrawn revolving credit facilities). Delta had an adjusted debt of $22.3 billion.

Per Janki, "We made significant progress restoring our financial foundation in 2022 with positive free cash flow generation and three quarters of double-digit margins. This enabled us to pay down over $4.5 billion of gross debt during the year, strengthening our balance sheet”.

Outlook

For the first quarter of 2023, the carrier expects capacity to decline 1% from first-quarter 2019 actuals and be around 62 billion. Total revenues (adjusted) are expected to increase in the 14-17% range from first-quarter 2019 actuals.

Management also expects fuel price per gallon in the $3.05-$3.25 range. Operating margin is expected in the 4-6% range.

For full-year 2023, the carrier expects capacity to increase 1% from 2019 actuals and be around 278.5 billion. Non-fuel unit cost (adjusted) for 2023 is expected in the 12.36-12.61 cents band, reflecting a 2-4% year over year decline. Total revenues (adjusted) are expected to increase in the 15-20% range on a year-over-year basis.

Management also expects 2023 fuel price per gallon in the $3 -$3.20 range. Operating margin for 2023 is expected in the 10-12% range.

Earnings per share for full-year 2023 is anticipated to be between $5 and $6. The Zacks Consensus Estimate of $5.08 per share is well below the mid-point ($5.50 per share) of the guided range. Free cash flow of more than $2 billion is expected in 2023.

Key Picks

Some better-ranked stocks in the Zacks Airline industry are American Airlines (AAL Quick QuoteAAL - Free Report) and Gol Linhas , both currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Airlines is based in Fort Worth, TX. The gradual increase in air-travel demand (particularly for leisure) is aiding AAL. However, high fuel costs are affecting the bottom line.

Over the past 60 days, the Zacks Consensus Estimate for AAL’s 2023 earnings has been revised 13.1% upward. AAL  has outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark in the other one). The average beat is 8.62%.

The gradual improvement in air-travel demand in Brazil is a huge boon for Gol Linhas.  Upbeat air-travel demand is boosting GOL’s traffic.

Over the past 60 days, the Zacks Consensus Estimate for GOL’s 2023 earnings has been revised 14.1% upward. GOL has outpaced the Zacks Consensus Estimate for earnings in two of the last four quarters (missing the mark in the other two).