Key Takeaways

  • Adjusted EPS was -$2.53 vs. the -$2.29 analysts expected.
  • Revenue exceeded analyst expectations.
  • Load factor was lower than consensus estimates.

What Happened

Delta reported mixed results for Q4 2020, with a quarterly load factor that fell short of analyst predictions by a considerable margin. On an adjusted basis, EPS was also lower than predicted. Both load factor and EPS were down significantly from Q4 2019 but up slightly from Q3 2020. Revenue was the one bright spot in an otherwise tough quarter; Delta beat analyst expectations in this area, although Q4 2020 revenue was still down YOY by a wide margin. Delta president Glen Hauenstein said the company expects the first part of 2021 to be characterized by "choppy demand recovery and a booking curve that remains compressed" before an inflection point and sustained demand recovery later in the year.

(Below is Investopedia's original earnings preview, published January 13, 2021.)

What To Look For

Delta Air Lines Inc. (DAL) has seen a drastic downturn in its business due to the COVID-19 pandemic. As the virus spread globally, travel restrictions and quarantines decimated air travel industry-wide, forcing Delta to park or retire about 40% of its fleet of aircraft by September of 2020. The company said in October it may be two more years before revenue returns to normal levels.

Now, investors will watch closely to see if Delta shows any signs of progress when it reports earnings before market open on January 14, 2021 for Q4 FY 2020. The news won't be good, at least in the short term. Analysts expect Delta to report its fourth consecutive quarter of losses on an adjusted basis. The company is also expected to report its fourth quarter in a row of revenue declines year-over-year (YOY).

One key metric that investors are likely to focus on in the earnings report is Delta's load factor, an efficiency gauge that measures what percentage of Delta's seating capacity is being used. As with revenue and EPS estimates, analysts predict that Delta's load factor will fall in Q4 FY 2020 compared to a year ago, though it will improve from Q3 FY 2020. Given the unusual circumstances of the airline industry during the pandemic, there is the potential for significant deviation from analyst expectations in this area.

Delta's stock price plunged early in 2020 as the pandemic took hold in the U.S. and has failed to stage a significant recovery since that time. The stock has drastically underperformed the broader market, posting a total return of -31.8% over the past 12 months compared to the S&P 500's total return of 15.6%.

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

Prior to the start of 2020, Delta's quarterly revenue had seen steady YOY increases in the range of 3.3% to 9.6% for 11 consecutive quarters. However, the company's revenue plummeted YOY in each of the first three quarters of 2020, with Q2 FY 2020 faring the worst as revenue declined by 88.3% YOY. Analysts expect that Q4 FY 2020 will see revenue fall 67.1% YOY.

Delta's adjusted earnings per share have been similarly dismal in each of the three most recent quarters. Q1 FY 2020 marked the first quarterly loss in nearly three years, reversing a string of significant quarterly YOY EPS gains. The losses were bigger in Q2 and Q3 FY 2020. For Q4, analysts expect yet another sizable loss, amounting to $2.29 per share on an adjusted basis.

Delta Key Metrics
  Estimate for Q4 2020 (FY) Q4 2019 (FY) Q4 2018 (FY)
Adjusted Earnings Per Share -$2.29 $1.70 $1.30
Revenue (in billions) $3.8 $11.4 $10.7
Load Factor 49.3% 85.6% 85.2%

Source: Visible Alpha

Declines in airline travel mean that Delta's passenger load factor will be a particularly crucial metric for investors. Load factor is likely to be negatively impacted by government-imposed restrictions on travel as well as decreased business travel and voluntary travel by individuals. Load factor measures the percentage of available seating capacity that is filled with passengers. A high load factor corresponds with a high percentage of seats occupied by passengers and is viewed as favorable. Because the costs of sending an aircraft into flight are roughly the same whether the jet is 50% or 100% full, 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.

Delta's load factor metric fully reflects the crisis facing the company. Analysts predict that Delta will report that its load factor for Q4 FY 2020 was 49.3%, drastically lower than 85.6% in Q1 FY 2019. That also is dramatically lower than load factors in each quarter of 2017, 2018, and 2019. It peaked at 88.3% in Q3 FY 2019.

There are some positive signs. The 49.3% load factor estimated for Q4 FY 2020 reflects a significant improvement from 34.2% in Q2 FY 2020 to 40.8% in Q3 FY 2020. The load factor will need to rebound even further before Delta sees a full recovery.