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Delta Air Lines: Q1 Losses Depict Airline Industry’s Struggles

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Delta Air Lines (NYSE:DAL) reported its results for the first quarter of fiscal 2020 on April 22. The stock fell 2.7% on Wednesday after the company reported losses that were higher than analysts’ expectations. Delta’s total revenue also declined for the quarter. Notably, the revenue was lower than the estimates. The outlook for the June quarter also appears bleak amid uncertainty due to the COVID-19 pandemic. United Airlines (NYSE:UAL) and American Airlines (NASDAQ:AAL) fell by 7.1% and 6.6% on Wednesday.

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Delta Air Lines’ losses widened

After United Airlines’ huge losses in its preliminary results, Delta Air Lines’ loss wasn’t a surprise. Analysts expect that all of the airlines will report lower revenues and higher losses. The travel demand has gone downhill amid COVID-19. However, Delta’s first-quarter losses were higher than expected. The company reported a loss of $0.51 per share compared to an estimate of $0.70 per share. Delta’s revenues were around $8.6 billion—slightly lower than analysts’ estimate of $8.9 billion. The revenues have fallen by 18% year-over-year. Sequentially, the revenue was 24.5% lower than the fourth-quarter fiscal 2019.

How’s the airline handing COVID-19?

Due to lower demand, Delta Air Lines reduced its June quarter revenues forecast by 90%. The company also reduced the total system capacity by 85%. Delta reduced the domestic capacity by 80% and the international capacity by 90%, respectively. The airline is also following health and safety measures to keep employees and customers safe.

Delta Air Lines has been offering free flights to medical professionals fighting COVID-19. The company has also been manufacturing face masks and shields. Delta expects to receive $5.4 billion in payroll support under the CARES Act. The support includes $3.8 billion as direct relief and $1.6 billion as a low-interest and unsecured ten-year loan.

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Despite the struggles in the airline industry and Delta’s second-quarter results, analysts look bullish on the recommendations for the stock. However, many analysts cut the target price for Delta Air Lines stock after the results. JPMorgan Chase cut the target price to $45 from $46. Evercore ISI cut the target price to $30 from $35. Cowen and Company cut the target price to $33 from $35. Meanwhile, Stifel raised the target price to $45 from $43. Raymond James cut the target price to $36 from $40.

Currently, 18 analysts cover Deltastock. Among the analysts, nine recommend a “buy,” three recommend a “strong-buy,” and six recommend a “hold.” The average target price for Delta stock is $39.2, which shows an upside potential of 74% over the next 12 months. Meanwhile, the average target price for United Airlines stock is $49.5, which shows an upside potential of 91%. Analysts have given American Airlines stock a target price of $16.25, which is 58% higher than its current trading price.

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