Key Takeaways

  • Analysts estimate adjusted EPS of -$1.50 vs. -$4.43 in Q1 FY 2021.
  • Load factor is expected to improve significantly on both a YOY and sequential basis.
  • Revenue is expected to improve YOY for the first time in six quarters.

Delta Air Lines Inc. (DAL) has benefited alongside the broader airline industry from the expectation that increased COVID-19 vaccination rates will lead to a sharp uptick in air travel. In a memo to employees, Delta's operations chief John Laughter predicted that domestic leisure travel would return to pre-pandemic levels by the end of June 2021. However, airlines are facing headwinds as the Delta coronavirus variant spreads and as jet fuel prices have risen.

Investors will watch how well Delta is performing financially amid these opposing trends when the company reports earnings on July 14 for Q2 FY 2021. Analysts expect adjusted losses per share (EPS) to narrow significantly year-over-year (YOY) and for revenue to grow YOY for the first time in six quarters.

Investors are also likely to focus on the key metric of Delta's load factor, an efficiency gauge that measures what percentage of Delta's seating capacity is being used. Analysts predict Delta's load factor to be the highest it has been since Q1 FY 2020, but still substantially lower than most pre-pandemic quarters in recent years.

Delta stock traded relatively in line with the broader market through July and most of August of last year before breaking ahead. The stock then made significant gains starting in late October and again in January of this year. Since achieving a high in April 2021, however, shares have slowly declined in recent months. All told, Delta stock has outperformed the broader market in the past year, providing total returns of 59.8% as compared with 39.0% for the S&P 500.

One Year Total Return for S&P 500 and Delta
Source: TradingView.

Delta Air Lines Earnings History

The surge in Delta's stock late in FY 2020 coincided with a broader positive outlook in the economy and with improving adjusted EPS. While Q2 FY 2020 saw the most substantial adjusted loss per share in years, these losses narrowed in Q3 and Q4 FY 2020. Q1 FY 2021 reversed course, as losses widened YOY once again. Now, investors anticipate that Delta will once again post a loss for Q2 FY 2021, with consensus estimates pointing to an adjusted loss per share of -$1.50. This would nonetheless represent the smallest quarterly loss since Q1 FY 2020, and a sign that Delta's business could be improving.

Delta's revenue fared similarly throughout FY 2021. It plunged at the start of the pandemic, with the steepest YOY declines occurring in Q2 FY 2020 and smaller YOY declines in Q3 and Q4. However, unlike adjusted EPS, revenue declines continued to narrow into FY 2021, which posted the smallest YOY revenue drop since Q2 2020. Investors estimate that the company will turn a corner in Q2 FY 2021, posting revenue that's more than four times bigger than a year earlier. Notably, this quarter will be compared to Q2 FY 2020, the hardest hit at the beginning of the pandemic. Despite that improvement, estimated Q2 2021 revenue would be less than half that of Q2 FY 2019, indicating that recovery is ongoing.

Delta Air Lines Key Stats
  Estimate for Q2 FY 2021 Q2 FY 2020 Q2 FY 2019
Adjusted Earnings Per Share -$1.50 -$4.43 $2.35
Revenue (billions) $6.2 $1.5 $12.5
Load Factor 65.2% 34.2% 88.0%

Source: Visible Alpha

The Key Metric

As mentioned, Delta investors are likely to focus heavily on the company's load factor. This metric measures the percentage of available seating capacity that is filled with passengers. A high load factor, as opposed to a low load factor, is associated with a high percentage of seats occupied by passengers. Because the costs of sending an aircraft into flight are relatively the same whether there are 50 people aboard or 100, airlines have a strong incentive to sell more tickets in order to fill seats. Higher load factors mean an airline's fixed costs are spread across a greater number of passengers, making the airline more profitable. But the COVID-19 pandemic has turned that logic on its head. Fuller planes are worse from a public health perspective in the midst of a global pandemic. This why plunging passenger air travel - and thus plunging load factor - has been a major issue for airlines since the start of the pandemic.

Throughout FY 2018 and FY 2019, Delta's load factor hovered between approximately 82% and 88%. This number fell to 73.1% for Q1 FY 2020, a reflection of the first portion of the pandemic, and then plunged to 34.2% for Q2 FY 2020. Since that time, the company has struggled to bring load factor back to pre-pandemic levels. Load factor percentages hovered in the low-40s for Q3 and Q4 FY 2020, and improved slightly to 44.7% for Q1 FY 2021. Analysts expect that load factor will make a significant recovery to 65.2% in Q2 FY 2021. While this is a marked improvement over the past four quarters, it still is significantly behind the average quarterly load factor for FY 2018 and FY 2019.