Delta Air Lines Inc. (DAL) has seen business plunge over the past year due to the COVID-19 pandemic. With government regulations limiting travel and many potential fliers opting to stay home, demand for Delta's services plunged in early 2020 and has remained depressed through April of this year.1
Investors will be watching for signs that Delta's business may have picked up when the company reports earnings on April 15 for Q1 FY 2021.2 Analysts expect adjusted losses per share (EPS) to widen dramatically year-over-year (YOY) and for revenue to fall for the fifth straight quarter.3
One key metric that investors are likely to focus in the report is Delta's load factor, an efficiency gauge that measures what percentage of Delta's seating capacity is being used. Analysts predict that load factor will drop significantly YOY in Q1, though it will be up slightly from the depressed levels in Q2, Q3 and Q4 of FY 2020.3
Delta shares traded roughly evenly with the broader market through most of Q2 and Q3 of 2020, save for temporary spikes in May and September. Beginning in November, however, the stock surged ahead of the market, with another significant uptick early in 2021. As of April 13, Delta shares have provided a total return of 107.6% over the past year, well ahead of the S&P 500's total return of 50.0%.
Delta Air Lines Earnings History
Delta's stock surge late in FY 2020 mirrored an improvement in Delta's adjusted EPS combined with brighter forecasts for the U.S. economy in 2021. After posting an adjusted loss per share of $4.43 for Q2 FY 2020, the loss narrowed to $3.30 per share for Q3 and then to a loss per share of $2.53 in Q4, which was the fourth straight quarter of losses. For Q1 FY 2021, analysts expect the losses to continue, with Delta posting an adjusted loss per share of $2.92. While that estimate is larger than the loss in Q4, it's a marked improvement from Q2 and Q3.3
Delta's revenue history through FY 2020 tells a similar story. The company reported a decline of about 18% YOY for Q1 FY 2020 after consistently posting YOY gains of 5% to 10% for the 8 quarters immediately prior. Revenue declines accelerated to a low point in Q2 FY 2020, falling by 88.3%, before improving somewhat in the final two quarters of the year. Still, even with this improvement, revenue for those quarters was still sharply below their levels in the same quarter a year earlier. For Q1 FY 2021, analysts estimate that Delta's revenue will fall 54.4%, a sign that the air carrier continues to face major challenges.
The Key Metric
As mentioned, Delta investors are likely to focus heavily on the company's load factor. This metric measures the percentage of available seating capacity that is filled with passengers. A high load factor, as opposed to a low load factor, is associated with a high percentage of seats 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 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. But the COVID-19 pandemic has turned that logic on its head. Fuller planes are worse from a public health perspective in the midst of a global pandemic. This why plunging passenger air travel - and thus plunging load factor - has been a major issue for airlines over the past year.
Delta's load factor ranged from roughly 82% to 88% for each of the eight quarters of FY 2018 and FY 2019. Load factor dipped to 73.1% for Q1 FY 2020 as the pandemic began to impact the U.S. heavily late in the quarter. It then plunged to 34.2% for Q2 FY 2021, its lowest level in years, and recovered anemically, reaching 41.5% by Q4 FY 2021. Analysts estimate that Delta's load factor will improve sequentially to 48.2% in Q1 FY 2021. But that estimate is down drastically from the same quarter a year ago. Most important, it's also down sharply from Delta's 87% load factor in Q4 2019, which is the quarter just before the pandemic shattered the airline industry.
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