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Delta Air Lines Q1 FY2022 Earnings Report Preview: What to Look For

Focus on DAL load factor

Key Takeaways

  • Analysts estimate adjusted EPS of -$1.22 vs. -$3.55 in Q1 FY 2021.
  • Load factor is expected to rise YOY, but fall slightly from Q4 FY 2021.
  • Revenue is expected to rise for the fourth straight quarter as travel demand continues to recover.

Delta Air Lines Inc. (DAL) has experienced a sharp rebound in revenue amid a recovery of travel demand after the COVID-19 pandemic brought the travel industry to a near halt. The company is even introducing a 4% pay increase for most of its employees as its domestic bookings recover to pre-pandemic levels. But wage increases and rising fuel costs are pressuring the air carrier's profits. Delta Chief Executive Officer (CEO) Ed Bastian recently said that the company will add a fuel surcharge to international flights, resulting in higher ticket prices.

Investors will be watching to see how Delta has been navigating the recovery in travel demand amid rising costs when the company reports earnings on April 13, 2022 for Q1 FY 2022. Analysts expect the airline to post an adjusted loss per share after two straight quarters of positive adjusted earnings per share (EPS). Revenue is expected to rise for the fourth consecutive quarter, but at a slower pace.

Investors will also focus on Delta's load factor, a key metric used by air carriers to gauge what percentage of paid-passenger seating capacity is being filled. Analysts expect the carrier's load factor to be dramatically higher than its level in the first quarter of FY 2021, when travel demand was considerably depressed during the pandemic. But it is still expected to be below pre-pandemic levels and lower than the third and fourth quarters of FY 2021.

Delta's shares have underperformed the broader market over the past year. The stock's performance gap with the market especially began to widen in early June 2021. It continued to widen throughout the rest of the year despite brief periods where the gap appeared to be narrowing. Shares of Delta have provided a total return of -21.7% over the past year, well below the S&P 500's total return of 6.9%.

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

Delta Air Lines Earnings History

Delta reported Q4 FY 2021 earnings that beat analysts' consensus estimates. The airline posted its second straight positive adjusted EPS after six consecutive quarters of adjusted losses per share. Revenue grew 138.6% year over year (YOY), marking the third straight quarter of growth after five straight quarters of revenue declines. However, growth was slower than in the previous two quarters. The airline said that the Omicron variant of the coronavirus disrupted travel during the quarter, but that its operations were starting to stabilize and return to pre-holiday performance.

In Q3 FY 2021, Delta's earnings and revenue surpassed expectations. The carrier posted its first positive adjusted EPS since the final quarter of FY 2019, before the start of the pandemic. Revenue expanded 199.0% YOY, marking the second consecutive quarter of growth. The company said that demand continued to improve during the quarter, but that rising fuel prices could impact its profitability in Q4.

Analysts expect mixed results for Q1 FY 2022. Delta is expected to post an adjusted loss per share, which would be its first since the second quarter of FY 2021. Revenue, however, is expected to rise 111.3% YOY. It would mark the fourth straight quarter of revenue growth, but it would be slower than the growth recorded in each of the previous three quarters. For full-year FY 2022, analysts expect adjusted EPS of $1.33, which would be the first year of adjusted profitability since FY 2019. Annual revenue is expected to rise 45.7%, slowing from the previous year's pace of 74.9%.

Delta Key Stats
  Estimate for Q1 FY 2022 Q1 FY 2021 Q1 FY 2020
Adjusted Earnings Per Share ($) -1.22 -3.55 -0.51
Revenue ($B) 8.8 4.2 8.6
Load Factor (%) 76.7 44.7 73.1

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on Delta's load factor, a key metric indicating the percentage of a carrier's available seats that are filled with paying passengers. A high load factor, as opposed to a low load factor, indicates that a high percentage of seats are 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 fill as many seats as possible by selling more tickets. Higher load factors mean an airline's fixed costs are spread across a greater number of passengers, making the airline more profitable. The pandemic has led to a reduction in air travel, leaving airlines with high fixed costs amid falling load factors and revenues, the combination of which is causing steep losses. Rising fuel prices are creating additional cost pressures, forcing airlines to raise ticket fares.

Delta's load factor in the two years prior to the start of the pandemic in FY 2020 was above 85%. In FY 2020, it fell to 54.7% amid the collapse in travel demand. The company's load factor reached as low as 34.2% in Q2 FY 2020. It then posted steady improvement over the next five quarters through Q3 FY 2021, when it reached a level of 79.6%. However, the load factor then slipped to 78.1% in Q4 FY 2021 and analysts expect it to fall again to 76.7% in the first quarter of FY 2022. While that would be dramatically higher than the year-ago quarter, it would still be down compared to pre-pandemic levels. For full-year FY 2022, analysts forecast that Delta's load factor will be 82.1%, which would be its highest since the start of the pandemic.

Article Sources

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  1. Bloomberg. "Delta Boosts Worker Pay 4% as Bookings Spring to Life."

  2. Financial Times. "Delta Air Lines to raise ticket prices in response to higher fuel costs."

  3. Delta Air Lines Inc. "Delta Air Lines Announces Webcast of March Quarter Results."

  4. Visible Alpha. "Financial Data."

  5. Delta Air Lines Inc. "Delta Air Lines Announces December Quarter and Full Year 2021 Financial Results."

  6. Delta Air Lines Inc. "Delta Air Lines Announces September Quarter 2021 Profit," Page 1.

  7. Bloomberg. "Soaring Airfares Shock Travelers After Pandemic Bargains."

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