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Delta's (DAL) Q1 Loss Narrower-Than-Expected, Revenues Down

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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) kick-started the first-quarter 2020 earnings season for the same space on a disappointing note.

This Atlanta-GA based behemoth incurred a loss (excluding 33 cents from non-recurring items) of 51 cents in the March quarter, narrower than the Zacks Consensus Estimate of a loss of 72 cents. Delta had reported earnings of 96 cents 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 coronavirus, things took a different turn. Due to the spread of the coronavirus at an exponential rate, blanket travel bans are imposed by governments across the globe. With several countries on lockdown, most people are adhering to strict social isolation measures by staying home and aborting travel plans to avoid contracting the infection.

As a result of such restrictions on free movement, passenger revenues, accounting for bulk of Delta’s top line (89.1% in the first quarter), took a massive hit. Due to this weakness in passenger revenues (down 18.2%), Delta’s total top line fell 18% year over year to $8,592 million. Additionally, total revenues lagged the Zacks Consensus Estimate of $9,637.5 million.

Delta Air Lines, Inc. Price, Consensus and EPS Surprise

 

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

Cargo revenues declined 20.8%. Other revenues also decreased 15.1%. The average fuel price (adjusted) in the first quarter was $1.82 per gallon, down 11% on a year-over-year basis.

Revenue passenger miles (a measure of air traffic) dropped 16.6% to 43.1 billion. With Delta making significant capacity cuts to match the coronavirus-induced sharp decrease in traffic, capacity (measured in available seat miles) contracted 5.7% to 58.88 billion. With the decline in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down 960 basis points to 73.1%. Passenger revenue per available seat mile (PRASM) too declined 13.3% year over year to 12.85 cents. Passenger mile yield slid 2% to 17.58 cents as well. On an adjusted basis, total revenue per available seat mile (TRASM) in the first quarter decreased 12.3% year over year to 14.59 cents.

Total operating expenses including special items declined 5% year over year to $9,002 million on the back of low fuel costs. Notably, expenses on aircraft fuel and related taxes declined 19% in the reported quarter. Operating cost per available seat mile (non-fuel or CASM- Ex: on an adjusted basis) increased 9% to 12.58 cents. The airline that already suspended dividend payouts and share buybacks due to the current crisis exited the quarter with unrestricted liquidity of $6 billion.  

CARES Update

Delta already gained federal financial assistance of $2.7 billion under the Coronavirus Aid, Relief and Economic Security (CARES) Act. The remaining $2.7 billion is expected to be received over the next three months. In exchange of the total payroll support of $5.4 billion ($3.8 billion in the form of direct support and $1.6 billion via low-interest loan) the U.S. Treasury will get warrants to buy in excess of 6.5 million shares of Delta’s common stock at $24.39 per share (5-year maturity). Delta has the option to apply for a further $4.6 billion in secured loans to bolster its financial position.
 

Cash Burn Rate for Q2

Delta, which burned $100 million in cash per day through March-end due to the coronavirus crisis, expects to bring down the rate to $50 million a day by the end of the second quarter..

Delta, carrying a Zacks Rank #3 (Hold), expects to cut 85% of its total system capacity in the June quarter. While international capacity is likely to be trimmed by 90%, the same is anticipated to be slashed by 80% on the domestic front.

Due to capacity cuts, low fuel costs and cost-management initiatives like parking more than 650 planes, implementing pay cuts and halting hiring, Delta expects a 50% ($5 billion) reduction in second-quarter expenses.  The carrier expects to end the second quarter with roughly $10 billion in liquidity.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Investors interested in the broader Transportation sector are keenly awaiting first-quarter 2020 earnings reports from key players, namely United Parcel Service (UPS - Free Report) , Old Dominion Freight Line (ODFL - Free Report) and Union Pacific (UNP - Free Report) . While UPS will report first-quarter earnings on Apr 28, Old Dominion and Union Pacific will announce the same on Apr 23.
 

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