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Is Delta’s Positive Quarter Good News For Airline Stocks?

Delta beat on revenue and earnings estimates in its Q4 2021 results and expects to return to profitability in the back half of 2022.

Delta Air Lines (NYSE: DAL) shares are rising more than 3% after it released some positive data and an earnings beat for Q4. It says it will be the only profitable U.S. airline in the second half of 2021 and the company took home the number 1 spot in the ‘Business Travel News Airline Survey’ for the eleventh year running.

Delta’s Q4 earnings report

Total revenue came in at $9.47 billion compared to estimates of $9.21 billion. While ahead of expectations, revenue has not yet recovered to the levels of Q4 2019 before the pandemic. The company reported a net loss of $408 million, but CEO Ed Bastian expects Delta to return to profitability in Q2 2022 and beyond.

The company also commented that 8,000 of its 75,000 workforce had tested positive for COVID-19 variants during the busiest period for the airline since 2019. In light of this, Delta has increased vaccination rates among employees to above 95% now.

What does it mean for the airline industry?

Business travel is seeing a stronger recovery, back to 60% of the pre-pandemic levels but whether or not this figure will surpass previous levels is unknown. The rise of video conferencing and work-from-home options could potentially see the landscape change permanently so we’ll have to wait and see on that score.

It’s also obvious that the spread of the virus is continuing to impact staffing as infections reach record numbers. Considering the figures above, along with those published by United Airlines — 3,000 of its staff tested positive last week — there are clearly still ongoing cancellations stemming from the pandemic.

But it’s at least lessening to an extent. Delta’s CEO has said “the worst is behind us” and mentioned cancellations were previously as high as 5%, but have since only seen “1% cancellations over the last seven days”. Though he may not be the best source — behind the scenes, the company is being criticized for encouraging workers to return to work after only 5 days, even if still testing positive. Whether that will affect flights scheduled in the near future is to be seen.

Takeaway

Despite the controversy, there’s still light at the end of the tunnel. A huge portion of gains have already been accounted for — in respect of investors that bet on travel in 2020 as a turnaround play — but companies like Delta are still considerably below highs before COVID-19. Airlines are prone to moving cyclically in boom-bust sequences but we could see them return to their former glory yet.

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