Delta Air Lines’ (DAL Quick QuoteDAL - Free Report) first-quarter 2023 earnings (excluding 82 cents from non-recurring items) of 25 cents per share missed the Zacks Consensus Estimate of 29 cents. Volatile fuel price and unfavorable weather conditions led to this downtick. DAL reported a loss of $1.23 per share a year ago, dull in comparison to the current scenario, as air-travel demand was not so buoyant then.

Revenues of $12,759 million missed the Zacks Consensus Estimate of $12,767.4 million. Driven by higher air-travel demand, total revenues increased 36.49% on a year-over-year basis.

Passenger revenues, accounting for 81.6% of total revenues, increased 51% year over year to $10,411 million. Domestic markets contributed 72.9% to the total passenger revenues. Domestic passenger revenues in the March quarter increased 37% year over year. Passenger revenues also improved on the international front.

Cargo revenues declined 28% year over year. Other revenues decreased to $2,139 million from $2,152 million a year ago. Adjusted operating revenues (excluding third-party refinery sales) came in at $11,842 million, up 45% year over year.

Despite the earnings and revenue miss, shares of Delta gained in the pre-market trading. It seems that investors were impressed by the upbeat outlook provided by management for second-quarter 2023. Backed by strong booking trends for summer, the company expects June-quarter revenues (adjusted) to increase in the 15-17% band from second-quarter 2022 actuals.

Second-quarter earnings are expected in the range of $2-$2.25 per share. The Zacks Consensus Estimate for earnings is currently pegged at $1.38.  Adjusted operating margin in the June quarter is expected in the 14-16% range.

Delta, currently carrying a Zacks Rank #3 (Hold), still expects earnings per share for full-year 2023 in the $5-$6 band. The mid-point of the guided range or $5.50 per share is above the Zacks Consensus Estimate of $5.20.

Other Aspects of the Q1 Earnings Report

Adjusted operating margin was 4.6%. The company had suffered an operating loss of 9.7% on an adjusted basis a year ago.

Below we present all figures (in % terms) compared with the first-quarter 2022 results.

Revenue passenger miles (a measure of air traffic) increased 28% to 49,687 million. Capacity (measured in available seat miles) expanded 18% to 61,351 million. Load factor (percentage of seats filled by passengers) was up to 81% from 75%.

Passenger revenue per available seat mile increased 27% to 16.97 cents. Passenger mile yield increased to 20.95 cents from 17.85 cents. On an adjusted basis, total revenue per available seat mile increased 23% to 19.30 cents in the March quarter.

Total operating expenses, including special items, escalated 29% to $13,036 million. Aircraft fuel expenses and related taxes surged 28% to $2,676 million in the reported quarter.

Fuel gallons consumed increased 18% to $888 million. Average fuel price per gallon (adjusted) increased 10% to $3.06. Non-fuel unit cost (adjusted or CASM-Ex) increased 5% to 13.86 cents in the reported quarter. The airline had liquidity worth $9.5 billion at the end of the March quarter (including $2.9 billion under undrawn revolving credit facilities). Delta had an adjusted debt of $21 billion.

Per Dan Janki, Delta’s chief financial officer, "Record March quarter free cash flow of $1.9 billion enabled $1.2 billion of debt repayment and positions us to complete our full year planned debt reduction in the first half of the year.”

Remaining aspects of outlook

For second-quarter 2023, the carrier expects capacity to increase 17% from second-quarter 2022 actuals. Fuel price per gallon is expected in the $2.55-$2.80 range. Non-fuel unit cost (adjusted) for the June quarter is expected to increase 1-3% year over year.

Management projects total revenues (adjusted) to increase in the 15-20% range on a year-over-year basis. Operating margin is expected in the 10-12% range. Free cash flow of more than $2 billion is anticipated.

Key Picks

Some better-ranked stocks in the Zacks Airline industry are American Airlines (AAL Quick QuoteAAL - Free Report) and Copa Holdings (CPA Quick QuoteCPA - Free Report) , both currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank 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 18.1% upward. The stock has outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters (missed once). The average beat is 7.79%.

Copa Holdings is benefiting from the improvement in air-travel demand. In fourth-quarter 2022, passenger revenues increased 29.5% due to higher yields.

CPA’s focus on its cargo segment is encouraging. In fourth-quarter 2022, cargo and mail revenues grew 69%, owing to higher cargo volumes and yields. Copa Holdings' fleet modernization and cost-management efforts are also commendable.

The above-mentioned tailwinds are likely to continue aiding this Latin American carrier. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 10% upward over the past 60 days.