Will Delta Airlines’ share price take-off on September quarter earnings?

Despite continued fears over COVID, the Delta Air Lines [DAL] share price has travelled well this year. An improvement in domestic leisure travel as vaccination numbers rise has spurred an improved performance.

"Domestic leisure travel is fully recovered to 2019 levels,” chief executive Ed Bastian said this summer, as Delta announced Q2 results, adding, “We are making investments to support our industry-leading operation. We are also opportunistically acquiring aircraft and creating upside flexibility to accelerate our capacity restoration in 2022 and beyond in a capital-disciplined manner."

The Delta share price climbed 28.5% in the year to 6 April, but dropped 26.6% over the following months as concerns over the new Delta COVID variant hurt passenger confidence.

Since the start of the year, the Delta share price has gained 7.4% overall. By comparison, peers such as American Airlines [AAL] and Southwest Airlines [LUV] have gained 27.6% and 10.9% this year, respectively.

Investors will be hoping the Delta Air Line share price can speed up its pace of growth when the company releases its September quarter-earnings on 13 October.

What is Delta Air Lines expected to report this quarter?

Delta expects its revenues to be 30% below the third quarter of 2019, when they stood at a record $12.6bn.

Analysts at Zacks expect Delta to post earnings of $0.15 — a huge turnaround compared with a loss of $3.30 per share in the same period last year. While Delta hitting this estimate would represent strong growth, Zacks originally thought earnings could have been even better — at $0.45 per share — before the company was hit by the emergence of the Delta variant.

Zacks also expects passenger revenues to be up by 31.9% on the numbers reported in its second-quarter this year and traffic (revenue per passenger miles) to be up 22.7%. Its load factor (the number of bums on seats on its planes) is expected to be 76%, up from 69% in June.

An increase in fuel prices is expected to hit Delta's bottom line. That could however be offset by efficiency in other expense areas.

Trefis analysts said: “The third round of payroll support is assisting employee salaries through September 30 — limiting operating losses even during the fourth wave. Notably, passenger numbers have also not observed a sharp decline — pinning hopes of strong air travel demand as infections decline.”

It expects Delta’s share price to gain 3.7% over the next month.

“The third round of payroll support is assisting employee salaries through September 30 — limiting operating losses even during the fourth wave. Notably, passenger numbers have also not observed a sharp decline — pinning hopes of strong air travel demand as infections decline” - Trefis analysts

Delta’s previous earnings performance

In its second-quarter Delta Air Lines reported an $881m adjusted pre-tax loss and an adjusted earnings per share loss of $1.07. Revenues came in at $7.1bn, down 43% on June 2019, before the pandemic hit. Analysts had expected a loss per share of $1.38 and revenues of $6.22bn.

Corporate volumes experienced steady improvement through the quarter driven by increased vaccination rates and the re-opening of offices.

Glen Hauenstein, Delta’s president, said, “Combined with our more efficient cost structure, we are on a path to improve on pre-pandemic margins and generate sustainable free cash flow.”

“Combined with our more efficient cost structure, we are on a path to improve on pre-pandemic margins and generate sustainable free cash flow” - Glen Hauenstein, Delta’s president

What could trigger a change in the Delta Air Lines share price?

Analysts will have a keen focus on consumer demand heading into the winter, as well as any guidance Delta can give on bookings for next summer’s holiday season.

They will also look closely and corporate and business travel numbers. Are they increasing? Can business travel survive the rise of work at home and Zoom meetings, as a result of the pandemic?

There will also be focus on rising fuel prices and potential labour shortages and disruption to flights if pilots or cabin crew come down with the virus.

According to Yahoo Finance, the average forecast among 19 analysts who have offered stock ratings for the Delta Air Lines share price is $66.30.

Morgan Stanley has a base target price of $67, although it sees the stock going as high as $96 under a bull scenario. In the worst case, it sees the share price going as low as $35. It has an ‘overweight’ rating, and likes the airline’s “strong customer satisfaction numbers among the other legacy peers.”