Will Delta Air Lines’ Losses Be Higher in Q2?


Jul. 24 2020, Updated 11:59 a.m. ET

The airline sector’s second-quarter earnings season starts this week. Delta Air Lines (NYSE:DAL) will likely report its financial results for the second quarter of fiscal 2020 on July 14 after the market opens. The company’s first-quarter losses were devastating, which wasn’t a surprise. The airline industry has taken a major hit from the COVID-19 pandemic. Air travel demand became non-existent due to the lockdown. 

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The industry estimated that the second quarter would show a higher impact from the crisis. Delta stock has fallen 53.6% YTD (year-to-date). Let’s see what Wall Street analysts expect from the company’s second-quarter results. 

Analysts’ estimates for Delta Air Lines’ Q2 results

The airline sector’s second-quarter losses might be higher. Although travel demand resumed in May amid the easing lockdown, it’s still a challenge, especially international travel. For the second quarter, analysts estimate a revenue decline of 88.8% YoY (year-over-year) to $1.4 billion. 

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Sequentially, the revenue could also decline from $8.6 billion in the first quarter. Analysts hope that the revenue will recover slowly starting in the third quarter. They expect the revenue to be around $4.1 billion in the third quarter. For the fourth quarter, the revenue could be around $6.1 billion. 

The losses also could be higher at $4.1 per share compared to a profit of $2.3 per share in the second quarter of fiscal 2019. The estimate is worse than the loss of $0.41 in the first quarter. For the third and fourth quarters, analysts expect the loss to be around $2.05 per share and $0.86 per share, respectively.

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Analysts don’t expect the losses to be lower until the second quarter of fiscal 2021. If air travel demand gets better, Delta Air Lines could report a profit of $0.77 per share in the second quarter of 2021. 

American Airlines (NASDAQ:AAL) and United Airlines (NYSE:UAL) will likely report their second-quarter earnings on July 23. Analysts expect American Airlines’ revenue to also decline by 88.0% YoY to $1.4 billion. The loss could be around $7.1 per share. For United Airlines, analysts hope that the revenue will be around $1.3 billion—an 88.5% decline. The company’s loss could be around $8.6 per share for the second quarter.

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What to expect in Q2

In an SEC filing on June 10, Delta discussed its expectations for the second quarter. The airline expects its second-quarter revenue to be down by 90% YoY with the capacity down 85%. By June 30, Delta’s target was to cut down its average daily cash outflow to $40 million—down from $100 million at the end of March. Reduced operating expenses and a rise in recent sales contributed to the reduced cash burn. 

The target is to reach zero daily cash burn by December 31, 2020. Delta expects continued domestic air travel demand and cost-cutting measures to help it achieve the target. Recently, Delta also discussed that more than 2,500 pilots might get furloughed

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The airline has been trying to arrange financing for its operations besides the aid received under the CARES Act. By the end of 2020, Delta hopes to have $10 billion in cash, cash equivalents, and short-term investments.

On July 6, Delta announced the addition of 1,000 flights for the month amid easing travel restrictions. However, the July schedule will still be 65% lower than the same period in 2019.

Airline stocks’ performance this year

Currently, 18 analysts cover Delta Air Lines stock. Most of the analysts are bullish. Eight analysts recommend a “buy,” three recommend a “strong-buy,” and seven recommend a “hold.” Analysts are also bullish on Southwest Airlines, which has a stronger balance sheet than most airlines. As a result, Goldman Sachs upgraded the stock to a “buy” last month. Recently, Jim Cramer also said that Southwest Airlines (NYSE:LUV) is a good stock. Meanwhile, American Airlines and United Airlines have a consensus “hold” recommendations.

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Delta’s consensus target price on the stock is $36.2. The target price depicts a 34% upside potential for the stock from its closing price on July 10. Delta Air Lines stock closed 5.6% higher at $27.09 on July 10. 

Airline stocks have been struggling in 2020. Most US airline stocks are down by double-digits YTD. American, United, Southwest Airlines, and Alaska Air (NYSE:ALK) have declined 58.3%, 62.9%, 38.4%, and 47.2%, respectively. So far in July, American, United, Southwest Airlines, and Delta Air Lines have fallen by 6.7%, 5.1%, 1.7%, and 2.2%. Alaska Air has gained 0.08% during the same period.

June was a sigh of relief for the sector due to increased travel demand. Overall, airline stocks benefited from the travel demand. Until the pandemic retreats, the situation will remain uncertain for the airline sector. International travel still faces restrictions. Airlines with limited operations in the domestic sector continue to benefit. 


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