Delta Air Lines (NYSE: DAL) jumps around 5% in pre trading session on Thursday after the company reports a $363 million loss for the first quarter, with rising labor and fuel costs masking a significant increase in sales. However, the airline forecast that it will turn a larger profit than anticipated in the current second quarter, which includes the beginning of the crucial summer travel season.
The CEO of Delta, Ed Bastian stated that the year 2023 is off to a great start because of the excellent effort and devotion of the Delta team. They gave their employees much-deserved salary raises and gave them more profit sharing than the rest of the industry combined. With the greatest employees in the business producing over $5 billion in operational profit over the last twelve months, Delta is gaining speed. They anticipate record sales, an adjusted operating margin of 14 to 16 percent, and profits per share of $2.00 to $2.25 for the June quarter.
Bastian added that they are optimistic in their full-year estimate for sales increase of 15 to 20 percent year over year, profits of $5 to $6 per share, and free cash flow of over $2 billion as a result of their outstanding March quarter profitability and a positive view for the June quarter.
Revenue Outlook of Delta Air Lines
The Delta’s president, Glen Hauenstein explained that they produced record-breaking revenue for the March quarter; with total unit revenue that was 16% higher than during the same period in 2019. These outcomes demonstrate the resilience of the underlying demand climate as well as the ongoing momentum of premium goods and loyalty revenue. They anticipate June quarter revenue to be 15 to 17 percent higher on capacity increase of 17 percent year over year due to record advance reservations for the summer.
He added, record free cash flow of $1.9 billion in the March quarter allowed for the repayment of $1.2 billion in debt and put them in a position to finish the full year’s targeted debt reduction in the first half of the year. They are committed to returning to investment grade criteria by the next year and are on schedule to decrease leverage to 3x to 3.5x in 2023. Their ongoing effort in delivering their balance sheet is recognized by the recent improvements to their debt rating outlooks by S&P and Fitch.
Shortfalls of Delta Air Lines
Delta spent $584 million more on gasoline in the first quarter than it did a year earlier, a 28% rise. After OPEC and allies, including Russia, agreed to reduce oil output, the price of petrol might increase.
The increase in Delta’s labor costs was 20%, or $560 million, and that amount did not include the $864 million in signing bonuses for pilots, who approved a new deal in March with significant pay increases. Other expenditures, such as those for selling and maintaining aircraft, also increased by double-digit percentages.
Compared to the $940 million deficit it had in the first quarter of last year, Delta’s loss was less. The Atlanta-based airline said that after deducting the cost of the pilot bonuses and other one-time expenses, it would have made $163 million, or 25 cents per share. A FactSet survey of analysts showed that they expected an adjusted profit of 29 cents per share.
