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Could Delta Air Lines’ Losses Be Higher amid COVID-19?

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Apr. 22 2020, Published 7:34 a.m. ET

Delta Air Lines (NYSE:DAL) will likely report its results for the first quarter of fiscal 2020 after the market opens today. Analysts don’t expect airline companies to have good results in the first quarter. The first quarter of fiscal 2020 will show COVID-19’s financial impact on airline companies. The airline industry has faced turbulence since the pandemic hit and travel restrictions were imposed. United Airlines (NYSE:UAL) reported losses in its preliminary first-quarter results on Monday. So far, Delta Air Lines has fallen by 60.5% year-to-date.

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What do analysts expect from Delta Air Lines’ Q1 results?

The airline industry’s earnings season starts this week. Right now isn’t a good time for the airline industry. The COVID-19 pandemic has affected all of the industries. However, the travel and tourism industry has been hit the hardest.

Analysts expect Delta Air Lines to report a 14.8% YoY (year-over-year) decline in its revenue to $8.9 billion. Sequentially, the revenue could also fall compared to $11.4 billion in the fourth quarter of 2019. The company could report a loss of $0.70 per share compared to a profit of $0.96 in the same quarter last year.

On Monday, United Airlines became the first airline company to discuss the pandemic’s financial impact. The company reported a loss of $2.1 billion. United Airlines’ revenue also declined by 17% to $8 billion in the first quarter.

American Airlines (NASDAQ:AAL) will likely report its first-quarter earnings on Friday. Analysts expect American Airlines to report a 15.7% YoY (year-over-year) decline in its revenue to $8.9 billion. The company could report a loss of $2.2 per share compared to a profit of $0.52 in the first quarter of fiscal 2019.

Southwest Airlines (NYSE:LUV) will likely report its first-quarter earnings on April 28. Analysts expect the company to report a 14.0% YoY (year-over-year) decline in its revenue to $4.4 billion. The company could also report a loss of $0.41 per share compared to a profit of $0.70 in the first quarter of fiscal 2019.

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Airline stocks amid the pandemic

Currently, 18 analysts cover Delta Air Lines stock. Among the analysts, nine recommend a “buy,” three recommend a “strong-buy,” and six recommend a “hold.” The average target price for the stock is $42.13. The target price represents an upside potential of 82% for the next 12 months. Notably, the stock closed 2.2% lower at $23.1 on April 21.

United Airlines and American Airlines also have a majority “hold” rating, which isn’t surprising due to the conditions in the airline industry amid the pandemic. United Airlines closed with a gain of 0.32% on Tuesday, while American Airlines closed 0.54% lower.

Like the other airlines, Delta Air Lines also had to reduce capacity and employ cost reduction measures. In March, the company announced a 10%–15% reduction in its domestic capacity, 15%–20% in its trans-Atlantic capacity, 65% in its Pacific capacity, and 5% in its Latin America capacity. The airline also announced a company-wide hiring freeze and voluntary leave options.

For financial aid, Delta Air Lines secured $3 billion under its existing revolving credit facilities. The company has also entered into another $2.6 billion secured credit facility. The airline has successfully secured $5.4 billion under the CARES Act. Out of the amount, $1.6 billion is a ten-year loan that will allow U.S.Treasury warrants to purchase 1% of Delta stock over the next five years. The remaining amount, close to $3.8 billion, is a grant to help cover employees’ salaries.

In my opinion, airline stocks are a “hold” right now until the pandemic ends. It will likely take a while for the travel industry to get back to normal. First, we don’t know when the pandemic will end. Second, even when the outbreak ends, business and leisure activities will resume slowly.

Stay with us to learn how Delta Airlines performed in the first quarter.

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