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Why Low Air-Travel Demand Should Hit Delta (DAL) Q1 Earnings
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Passenger revenues account for bulk of Delta Air Lines’ (DAL - Free Report) top line (89.9% in 2019). However, the same is likely to have depleted in March, the final month of the first-quarter 2020 earnings season. This, in turn, might have hurt the carrier’s overall quarterly outperformance when it reports on Apr 22.
Passenger revenues are recognized from three sources, such as ticket sales, loyalty travel awards and travel-related services. Geographically, passenger revenues are generated from domestic operations in the Atlantic, Latin America and the Pacific region.
Strong Air-Travel Demand Boosted Q4 Top Line
During the final quarter of 2019, passenger revenues, which accounted for 89.6% of the top line, improved 6% mainly owing to buoyant demand for air travel. Revenue passenger miles (a measure of air traffic) increased 5.2% to 56 billion. Load factor (percentage of seats filled by passengers) improved 40 basis points to 85.6% as traffic growth outpaced capacity expansion. Passenger revenue per available seat mile (PRASM) inched up 1.4% year over year to 15.65 cents.
Q1 Traffic to Suffer Damage
Even though passenger traffic was likely to have been strong in January and February, the fact that air-travel demand was crippled in March as coronavirus was declared a pandemic by the World Health Organization during that time, is likely to have weighed on Delta’s top line in the to-be-reported quarter. Delta apart, the waning air-travel demand hurt Delta’s fellow airline players like United Airlines (UAL - Free Report) , American Airlines (AAL - Free Report) and Southwest Airlines (LUV - Free Report) .
Coming back to Delta, to compensate the extremely low-demand scenario with many countries on lockdown and wide-spread travel restrictions in place, this Zacks Rank #3 (Hold) carrier is trimming its capacity inducing cancellation of multiple flights. In fact, management at Delta, which is burning more than $60 million in cash each day, stated that the carrier’s first quarter was “unlike any quarter in Delta’s history”.
Highlighting the above headwind, the Zacks Consensus Estimate for Delta’s first-quarter passenger load factor stands at 82, indicating a 4.7% decline from the figure reported in fourth-quarter 2019. The company is likely to have carried 6.3% passengers less in the first quarter than the number reported in fourth-quarter 2019. Also, the Zacks Consensus Estimate for first-quarter PRASM stands at 14.7 cents, implying a 6.1% fall from the figure reported sequentially.
Overall Earnings & Revenue Projections
Due to the coronavirus-induced extremely low air-travel demand, the Zacks Consensus Estimate for first-quarter earnings is pegged at a loss of 70 cents, indicating a massive deterioration from fourth-quarter 2019 earnings per share of $1.7. For quarterly sales, the consensus mark is pegged at $9.64 billion, suggesting a 15.4% decrease from the figure reported in the sequential quarter.
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Why Low Air-Travel Demand Should Hit Delta (DAL) Q1 Earnings
Passenger revenues account for bulk of Delta Air Lines’ (DAL - Free Report) top line (89.9% in 2019). However, the same is likely to have depleted in March, the final month of the first-quarter 2020 earnings season. This, in turn, might have hurt the carrier’s overall quarterly outperformance when it reports on Apr 22.
Passenger revenues are recognized from three sources, such as ticket sales, loyalty travel awards and travel-related services. Geographically, passenger revenues are generated from domestic operations in the Atlantic, Latin America and the Pacific region.
Strong Air-Travel Demand Boosted Q4 Top Line
During the final quarter of 2019, passenger revenues, which accounted for 89.6% of the top line, improved 6% mainly owing to buoyant demand for air travel. Revenue passenger miles (a measure of air traffic) increased 5.2% to 56 billion. Load factor (percentage of seats filled by passengers) improved 40 basis points to 85.6% as traffic growth outpaced capacity expansion. Passenger revenue per available seat mile (PRASM) inched up 1.4% year over year to 15.65 cents.
Q1 Traffic to Suffer Damage
Even though passenger traffic was likely to have been strong in January and February, the fact that air-travel demand was crippled in March as coronavirus was declared a pandemic by the World Health Organization during that time, is likely to have weighed on Delta’s top line in the to-be-reported quarter. Delta apart, the waning air-travel demand hurt Delta’s fellow airline players like United Airlines (UAL - Free Report) , American Airlines (AAL - Free Report) and Southwest Airlines (LUV - Free Report) .
Coming back to Delta, to compensate the extremely low-demand scenario with many countries on lockdown and wide-spread travel restrictions in place, this Zacks Rank #3 (Hold) carrier is trimming its capacity inducing cancellation of multiple flights. In fact, management at Delta, which is burning more than $60 million in cash each day, stated that the carrier’s first quarter was “unlike any quarter in Delta’s history”.
Highlighting the above headwind, the Zacks Consensus Estimate for Delta’s first-quarter passenger load factor stands at 82, indicating a 4.7% decline from the figure reported in fourth-quarter 2019. The company is likely to have carried 6.3% passengers less in the first quarter than the number reported in fourth-quarter 2019. Also, the Zacks Consensus Estimate for first-quarter PRASM stands at 14.7 cents, implying a 6.1% fall from the figure reported sequentially.
Overall Earnings & Revenue Projections
Due to the coronavirus-induced extremely low air-travel demand, the Zacks Consensus Estimate for first-quarter earnings is pegged at a loss of 70 cents, indicating a massive deterioration from fourth-quarter 2019 earnings per share of $1.7. For quarterly sales, the consensus mark is pegged at $9.64 billion, suggesting a 15.4% decrease from the figure reported in the sequential quarter.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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