Delta AirlinesDAL’s first-quarter 2022 loss (excluding 25 cents of one-time items) of $1.23 per share was narrower than Zacks’ consensus estimate of a loss of $1.28. With Omicron hampering travel plans at the start of the first quarter of 2022, the carrier suffered a loss after turning a profit in the last two quarters of 2021.

However, with the threat of the omicron variant diminishing, demand for air travel was exceptionally strong in the month of March. Upbeat demand helped DAL turn a profit in March, with adjusted operating margin reaching nearly 10%.

Delta Air Lines, Inc. Price, Consensus, and EPS Surprise

Delta Air Lines, Inc. price-consensus-eps-surprise-chart | Quote from Delta Air Lines, Inc.

Also driven by sustained demand, Delta gave a bullish outlook for the second quarter of 2022. This optimistic view seemed to please investors. As a result, the stock rose in premarket trading. According to Delta President Glen Hauenstein, “During the June quarter, we were successful in recouping higher fuel prices and we expect our revenue recovery to accelerate to 93-97% with rising unit revenues. double digits compared to 2019.” Operating margin (adjusted) for the June quarter is expected in the 12-14% range.

Going back to Q1 2022 results, Delta’s revenue was $9,348 million, which not only topped Zacks’ consensus estimate of $9,063.5 million, but also increased more than 100% compared to the previous year’s figure. The rise in demand for air travel in the United States can be measured by the fact that 80.5% of passenger revenues in the first quarter of 2022 came from domestic markets.

Despite improving year-over-year demand for air travel (particularly for leisure) in the United States as more Americans get vaccinated, the overall picture remains lackluster compared to the first quarter 2019 scenario, mainly due to soft business and international travel. As a result, passenger revenue fell 25% from levels seen in the comparable quarter of 2019 to $6,907 million.

Cargo revenue jumped 51% to $289 million. This is the sixth consecutive quarter that freight revenues have increased from levels in comparable periods in 2019. Freight revenues in the reported quarter were boosted by strong demand and favorable yields. Revenue from other sources soared significantly to $2,152 million. March quarter total revenue decreased 11% from the first quarter 2019 level.

Adjusted operating revenue (which excludes third-party refinery sales) was $8.2 billion, reflecting a 79% recovery from the first quarter of 2019 level. Capacity in the first quarter of 2022 was restored to 83% of Q1 2019 actuals. Domestic and international passenger revenues were restored to 83% and 54%, respectively.

Other Q1 financial details

Below we present all the comparisons (in percentage) with the first quarter of 2019 (pre-coronavirus levels).

Revenue passenger miles (a measure of air traffic) fell 25% to 38.7 trillion. Capacity (measured in available seat miles) contracted 17% to 51,810 million. As the decline in traffic exceeded the reduction in capacity, the load factor (percentage of seats occupied by passengers) fell to 75% from 83% in the comparable quarter of 2019.

Passenger revenue per available seat mile (PRASM) fell 10% to 13.33 cents. Passenger-mile yield declined to 17.85 cents from 17.93 cents in the first quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) deteriorated 5% to 15, 75 cents in the March quarter.

Total operating expenses, including special items, increased 7% to $10,131 million. Aircraft fuel expenses and related taxes increased 6% in the current quarter. Gallons of fuel consumed fell 22% to $751 million. With the price of oil moving north, the average fuel price per gallon (adjusted) rose 37% to $2.79. Non-fuel unit cost increased by 15% in the current quarter.

The airline had cash on hand worth $12.8 billion at the end of the March quarter (including cash and cash equivalents, short-term investments and undrawn revolving credit facilities). Delta, which currently carries a Zacks Rank #3 (Hold), had total debt and finance lease obligations of $25.6 billion with adjusted net debt of $20.9 billion.

Operating cash flow in the quarter was $1.8 billion. Free cash flow (after injecting $1.6 billion into the business, mostly for aircraft purchases and modifications) was $197 million.

You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Remaining aspects of the Q2 outlook

All percentage comparisons are made with Q2 2019 figures. For Q2 2022, the carrier expects to operate at 84% of Q2 2019 capacity. Non-fuel unit costs are expected to increase 17% from to actual figures for the second quarter of 2019.

Gross capital expenditures and adjusted net debt are expected to be $1.2 billion and $20 billion, respectively, in the June quarter. Management also expects fuel prices per gallon to be between $3.20 and $3.35. Delta expects to generate strong free cash flow in the June quarter.

Actions to consider

Below, we highlight some top-ranked stocks in the broader transportation sector:

Washington International Shippers EXPD currently sports a Zacks rank #1 (strong buy). EXPD is supported by optimistic airfreight revenues. We expect this upward trend in air cargo revenue to contribute to results for the first quarter of 2022 (expected May 3, 2022), similar to the performance of all four quarters in 2021.

The wave of optimism surrounding EXPD stock is evident from the 12.48% northbound revision to its current-year Zacks consensus estimate over the past 60 days.

Ryder system R currently has a Zacks rating of 1. Improving US economic and freight market conditions likely contributed to R’s performance in the first quarter. Detailed results will be released on April 27.

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