- Analysts estimate adjusted EPS of $0.10 vs. -$2.53 in Q4 FY 2020.
- Load factor is expected to rise YOY, but fall slightly from Q3 FY 2021.
- Revenue is expected to rise for the third straight quarter, but at a slower pace, as travel demand continues to recover.
Delta Air Lines Inc. (DAL) made its first adjusted profit since the start of the COVID-19 pandemic in early 2020 in the third quarter. Travel demand has slowly recovered over the past year amid vaccine rollouts and the easing of travel restrictions. Despite the spread of new coronavirus variants, such as Delta and Omicron, the airline said last month that demand and fares continued to rebound. Delta management confidently said then that the airline would post a profit in both the fourth quarter of 2021 and for all of fiscal 2022.
Investors will look closely at the strength of Delta's profit and revenue rebound when the company reports earnings on Jan. 13, 2022 for Q4 FY 2021. Analysts expect the airline to post its second straight positive adjusted earnings per share (EPS) after a string of six straight quarterly adjusted losses since the start of the pandemic. Revenue is expected to rise at a rapid pace, albeit slower than in the previous two quarters.
Investors will 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 nearly double its level in the fourth quarter of FY 2020, when travel demand was drastically depressed during the pandemic. But it is still expected to be below pre-pandemic levels.
Delta's shares have underperformed the broader market over the past year. The stock outperformed for most of the first half of the past year, but began to lag the market in late June 2021. Aside from a few days of outperformance at the start of October, the stock has continued to lag the rest of the market. Shares of Delta have provided a total return of 4.6% over the past year, well below the S&P 500's total return of 24.0%.
Delta Earnings History
Delta reported Q3 FY 2021 earnings that beat analysts' expectations. The airline posted its first positive adjusted EPS since the final quarter of FY 2019, before the start of the pandemic. Revenue expanded 199.0% year over year (YOY), marking the second straight quarter of growth after five consecutive quarters of revenue declines. The company noted that demand continued to improve during the quarter, but that rising fuel prices could impact its profitability in Q4.
In Q2 FY 2021, the company beat analysts' consensus earnings estimates even though it reported its sixth consecutive quarterly adjusted loss per share. Revenue rose 385.4%, the first increase since Q4 FY 2019. Delta noted that domestic leisure travel had fully recovered to 2019 levels and that it was seeing signs of improvement in both business and international travel.
For Q4 FY 2021, analysts expect Delta to report its second quarter of positive adjusted EPS since the start of the pandemic. Revenue is expected to rise 127.4%, which would be the third straight quarter of growth. For full-year FY 2021, analysts expect an adjusted loss per share of $4.15, less than half the loss per share reported in the previous year. Annual revenue is expected to rise 71.0%, a significant improvement after last year's decline of 63.6%.
|Delta Key Stats|
|Estimate for Q4 FY 2021||Q4 FY 2020||Q4 FY 2019|
|Adjusted Earnings Per Share ($)||0.10||-2.53||1.70|
|Load Factor (%)||78.5||41.5||85.6|
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 Q3 FY 2021, when it reached a level of 79.6%. However, analysts are expecting Delta's load factor to fall slightly in Q4 FY 2021 to 78.5%. If Delta matches that estimate, it will mark a dramatic improvement from any quarter in 2020. Despite that, Delta's load factor remains well below pre-pandemic levels, illustrating that travel demand industrywide is far from a full recovery.