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Delta Ups Q1 Outlook on Healthy Demand and New Credit Deal

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Updated

Raises outlook

Delta Air Lines (DAL) shares jumped over 6% on April 2 after the company increased its first-quarter guidance. The airline cited robust passenger demand and a renewed credit-card deal with American Express (AXP) as the main reasons behind the upbeat guidance.

Delta now expects its first-quarter revenues to increase by 7% YoY (year-over-year), which is higher than the company’s earlier guidance range of 4%–6% growth. Wall Street had projected an increase of 4.2%. The company also raised the unit revenue growth expectation to ~2% from an earlier expected range of flat to up 2% YoY.

In an investor update released on April 2, Delta revealed that it continued to witness healthy demand for business and leisure travels throughout the first quarter. During the quarter, the company carried a record of 45 million passengers.

Further, the company registered a traffic growth of 4.8% in the March ending quarter while its capacity increased 5.4%. However, Delta reported a YoY decline of 3.2% in cargo ton-miles.

Going ahead, apart from increased passenger traffic, Delta discloses that a renewed credit-card partnership with American Express has provided a one-point benefit to its first-quarter total unit revenue.

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Bottom-line expectations

Delta expects its cost control measures and higher completion factor to lead to an expansion in its fourth-quarter pre-tax margin and EPS. The company now expects the first-quarter pre-tax margin to be 7%–8%—higher than the previous guidance range of 6.5%–8.5%. The EPS is projected to be $0.85–$0.95, which is higher than the earlier guidance range of $0.70–$0.90. Analysts are anticipating the company to report EPS of $0.87.

The company’s cost control measuresOne Delta, and fleet transformation initiatives to continue helping it efficiently manage non-fuel expenses. Delta now anticipates its non-fuel unit cost to increase by 0.5% in the first quarter, lower than the previous guidance range of an increase of 1%–2%. Nonetheless, fuel cost is forecasted to slightly go up to $2.03–$2.08 per gallon instead of $1.95–$2.05 per gallon projected earlier.

Following Delta’s impressive first-quarter outlook investors gained some confidence on the airline stocks (IYT). Among major US air carriers, United Airlines (UAL) rose 2.4%, American Airlines (AAL) gained 2% and Spirit Airlines (SAVE) soared 1.1%.

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