Shares in Delta Airlines (NYSE: DAL) were up about 3% in today’s afternoon session. The move comes as investors continue to digest an excellent set of first quarter results released the previous day.
In a nutshell, the earnings report helped ease fears that the recovery of commercial aviation markets could be stalled by a combination of geopolitical tensions, rising fuel prices and outbreaks of COVID-19 in the main Asian countries, China and Japan.
Fuel prices were higher than expected in the first quarter. Yet Delta CEO Ed Bastian on the earnings call said: “[W]We are successfully recovering from higher fuel prices, which allows us to forecast an adjusted operating margin of 12-14% and strong free cash flow in the June quarter. , only to see the price hit $2.79. However, Delta more than compensated by significantly exceeding revenue expectations. After starting the quarter expecting revenue to be 72% to 76% of that reported in the same quarter of 2019, Delta’s adjusted revenue actually came in at 79%.
Revenue numbers are excellent, and management revealed that Delta had a strong March after an omicron January and February. On the earnings call, Chief Financial Officer Dan Janki said Delta generated “profit in March and positive cash flow for the quarter” thanks to a takeover from the all-important business traveler.
Management believes that business travel is back. As a result, its Q2 revenue forecast is 93% to 97% of the same quarter level in 2019, with an operating margin of 12% to 14%.
Delta ended the quarter in good shape and the outlook for the second quarter calls for a continuation of an excellent trend. Investors have every reason to believe that the recovery of commercial aviation will continue until 2022, even with higher costs.
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Lee Samaha has no position in the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
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