DAL Reports First Pre-Tax Profit Since Pandemic Struck

Delta Air Lines (DAL) reported a narrower-than-expected adjusted loss for the second quarter. Earnings and revenue both surpassed analysts’ estimates driven by a rebound in business travel and the reopening of international markets.

Shares of the U.S. legacy airlines were down 1.6% on July 14 to close at $40.68.

The company reported an adjusted loss of $1.07 per share, beating analysts’ expectations of a loss of $1.40 per share. Revenues of $7.13 billion exceeded the consensus estimate of $6.2 billion.

Importantly, the company reported a pre-tax profit of $776 million for the first time after five consecutive quarters of losses due to the COVID-19 pandemic. The pre-tax profit was aided by a $1.5 billion benefit received from the federal payroll support program.

Delta’s load factor, or the percentage of seats sold, was 69%, up 24 bps from the previous quarter. (See DAL stock charts on TipRanks)

However, total Passenger Revenue declined 53% to $5.4 billion compared to the June quarter of 2019 due to lower scheduled capacity and the impact of the blocking of the middle seat through April 2021.

Management said that domestic travel has completely recovered and returned to the pre-pandemic levels. Furthermore, both business and international travel are on track towards recovery.

As a part of its fleet renewal initiative, the company recently announced that it will add pre-owned aircraft to its fleet, including seven Airbus A350s and twenty-nine 737-900ERs.

Moreover, last month, Delta announced its plan to hire over 1,000 pilots by next summer.

Delta’s CEO Ed Bastian commented, “Looking forward, we are harnessing the power of our differentiated brand and resilient competitive advantages to drive towards sustainable profitability in the second half of 2021 and enable long-term value creation.”

He further added, “With the recovery picking up steam, we are making investments to support our industry-leading operation. We are also opportunistically acquiring aircraft and creating upside flexibility to accelerate our capacity restoration in 2022 and beyond in a capital-disciplined manner”.

Delta expects to be profitable in the second half of the year. However, for the upcoming third quarter, the company expects revenues to be down 30% to 35% versus the same quarter in 2019. It also expects capacity to be down 28% to 30% compared with the September 2019 quarter.

Following the results announcement, Bernstein analyst David Vernon maintained a Buy rating and the price target of $64 (57.3% upside potential) on the stock.

Vernon commented, “Guidance for back half revenue and profitability is constructive, as underlying demand trends remain intact, business travel is on the mend, and cost performance, if choppy, is pointing in the right direction.”

Consensus among analysts is a Strong Buy based on 9 Buys and 2 Holds. The average Delta Airlines price target of $59.63 implies 46.6% upside potential to current levels.

TipRanks data shows that financial blogger opinions are 86% Bullish on DAL, compared to a sector average of 70%.