Key Takeaways

  • Analysts estimate adjusted EPS of $0.25 vs. -$3.30 in Q3 FY 2020.
  • Load factor is expected to rise YOY.
  • Revenue is expected to increase dramatically as travel demand continues to recover.

Delta Air Lines Inc. (DAL) and the rest of the airline industry have begun to bounce back after demand for travel collapsed last year amid the COVID-19 pandemic. By early July, Delta and other airlines were rushing to hire pilots and other staff to meet rising demand. Many Delta workers were either furloughed, took buyouts, or retired early last year amid travel restrictions and passengers choosing to stay home. The pace of the industry's recovery, however, has been slowed by the fast-spreading Delta variant of the coronavirus.

Investors will be watching to see how the rebound in travel has affected Delta's recent financial performance when it reports earnings on October 13, 2021 for Q3 FY 2021. Analysts expect the airline's adjusted earnings per share (EPS) to be positive for the first time since the final quarter of FY 2019. Revenue is expected to rise at a rapid pace for the second consecutive quarter.

Investors will also be focusing 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 nearly double its level in the third quarter of FY 2020, when travel demand was drastically depressed during the pandemic. Despite that improvement, Delta's load factor is still expected to be below levels prior to the pandemic.

Delta's shares have outperformed the broader market over the past year. The stock's performance began to outpace the market in early November 2020 and hit a recent peak in early April 2021 before pulling back considerably. Between late July and mid-September, the stock mostly lagged the market before beginning to outperform again. Shares of Delta have provided a total return of 32.3% over the past year, above the S&P 500's total return of 23.4%.

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

Delta Earnings History

Delta reported Q2 FY 2021 earnings that beat analysts' expectations. The company posted an adjusted loss per share of $1.07, the smallest adjusted loss per share since the first quarter of FY 2020. Revenue rose 385.4% year over year (YOY), ending a streak of five consecutive quarters of revenue declines. Delta noted that domestic leisure travel had fully recovered to 2019 levels but that it was seeing signs of improvement in both business and international travel.

In Q1 FY 2021, Delta's adjusted EPS missed analysts' consensus estimates, posting an adjusted loss of $3.55 per share. It was the airline's second biggest loss per share since the start of the pandemic. Revenue beat expectations despite continuing to slide for the fifth straight quarter. However, the 51.7% drop in revenue was the slowest decline since Q1 FY 2020. Delta noted that it was beginning to see a recovery in travel demand, and if that recovery were to continue, it said it expected to return to profitability in the third quarter of FY 2021.

Analysts expect Delta's adjusted EPS and revenue to continue improving in Q3 FY 2021. Adjusted EPS is forecast to be positive for the first quarter since the start of the pandemic. Revenue is expected to rise 175.5%, which would be the second straight quarter of rising revenue. For full-year FY 2021, analysts expect an adjusted loss of $3.88 per share, which would be the second consecutive year of adjusted losses, but significantly smaller than last year's. Annual revenue is forecast to rise 65.2% after dropping 63.6% last year.

Delta Key Stats
  Estimate for Q3 FY 2021 Q3 FY 2020 Q3 FY 2019
Adjusted Earnings Per Share ($)  0.25 -3.30 2.33
Revenue ($B) 8.4 3.1 12.6
Load Factor (%) 77.7 40.8 88.3

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.

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 increased to 40.8% in the third quarter and continued to improve through Q2 FY 2021, when it reached a level of 68.6%. Analysts expect continued improvement in Q3 FY 2021, forecasting Delta's load factor to be 77.7%. It would mark the airline's highest load factor since the start of the pandemic, but still below pre-pandemic levels. For full-year FY 2021, analysts expect the airline's load factor to improve to 68.8%.