Low Fuel Costs May Improve Delta's (DAL) Q2 Earnings Picture
It is more or less certain that Delta Air Lines DAL will report low passenger revenues, thanks to the coronavirus-led plummeting air-travel demand when it kicks off the second-quarter 2020 earnings season for airlines on Jul 14.
As passenger revenues form a key component of the top line, this Atlanta, GA- based carrier’s top line performance is likely to have been severely dented in the June quarter. In fact, management at this currently Zacks Rank #3 (Hold) company anticipates a 90% plunge in second-quarter revenues from the year-ago level due to softness in air-travel demand.
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Low Fuel Costs: A Tailwind for Q2
Despite rallying from the April lows to register the highest percentage increase in a quarter since the 1990 Gulf War, U.S. oil prices are still modest in absolute terms. Notably, oil prices exited the June quarter at around $40 a barrel and were down more than 30% in the first half of 2020.
Against this backdrop, weak fuel prices might get reflected in Delta’s bottom line. Notably, the Zacks Consensus Estimate for average fuel price per gallon (adjusted) suggests a 40.1% drop from the figure reported in the March quarter.
Moreover, with a significant portion of the fleet remaining grounded or under-utilized due to the coronavirus-led extremely bleak demand scenario, the carrier’s fuel gallon consumption is likely to have been moderate in the June quarter, thereby reducing fuel expenditure. This, in turn, might have boosted the airline’s bottom-line performance. Notably, the Zacks Consensus Estimate for fuel gallons consumed (on a consolidated basis) indicates an 81.4% slump from the figure reported sequentially in the March quarter.
Overall Top & Bottom-Line Projections
Due to coronavirus-triggered dismal air-travel demand, the Zacks Consensus Estimate for the second-quarter bottom line is pegged at a loss of $4.06 per share. For quarterly sales, the consensus mark stands at $1.4 billion, implying an 88.3% plummet from the figure reported in the second quarter of 2019.
Our Take
Even though dwindling passenger revenues are likely to have hurt Delta’s top-line performance, low fuel price and minimal fuel consumption are likely to have provided some relief and driven the bottom-line performance of Delta amid the plaguing pandemic.
Not only Delta, we expect the decline in fuel costs to also have aided the bottom-line performances of fellow airline players like United Airlines UAL, American Airlines AAL and Southwest Airlines LUV, thereby partly offsetting the adversities induced by tepid travel demand. While United Airlines will report results on Jul 21, American Airlines and Southwest Airlines will release the same on Jul 23. All three stocks carry the same Zacks Rank as Delta at present.
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