The travel industry, especially the airline companies, was hit hard by the spread of COVID-19. As a result of global lockdowns and safety concerns, airline companies had to shut down or significantly reduce operations. Numerous countries stopped international airline travel while domestic travel was highly restricted.
The share prices of most airline companies plunged amidst the uncertainty and hit a record low during the mid-March stock market crash which took place in 2020. However, stock prices have recovered considerably since then.
Revenue figures of global airline companies also saw a sheer plunge. During the first quarter of 2021, global aviation revenue touched a low of $35 billion dollars but significantly recovered in the second quarter with revenues of $135 billion.
Amidst this backdrop, the 2021 second-quarter earnings release of Delta Airlines (NYSE: DAL) has been much awaited. Industry experts and investors are looking for signs of recovery. As the economy reopens, it remains to be seen how well the airline industry, in general, and Delta Airlines, in particular, will recuperate.
Here are the key takeaways from Q2 earnings result of Delta Airlines.
The recovery of domestic leisure travel in U.S.
In the second quarter of 2021, Delta Airlines sales stood at $6.3 billion. It was 49% lower compared to the second quarter of 2019 but was better than the management forecast of a sales decline between 50% and 55%. Delta sales were up 76% year over year in Q2.
Perhaps the most significant takeaway is that domestic leisure travel has returned to pre-pandemic 2019 levels. Delta Airlines saw customers return in hordes as exhausted Americans rushed to book vacations.
The recovery may be seen as a vote of confidence in the future of the American economy as a whole. Travelers booked flights despite stringent COVID-19 protocols which were put in place to ensure their safety.
In contrast, business travel and international travel are yet to see pre-pandemic numbers. Crippling restrictions on international travel are still in place in numerous countries around the world as a safety precaution. Business travel has also reduced as executives relied on virtual communications as a substitute.
Advanced Travel Bookings Stabilized
Travelers were found to be making advanced travel plans by air. The June quarter saw double the amount of average daily net cash sales, when compared to the March quarter. This number was also 20% higher than Delta Airline’s own forecast.
This significant increase shows how fast Delta Airlines is recuperating and how fast revenues are rising in post-pandemic America.
The fact that many of these bookings are advanced shows that demand for Delta Airline services will be robust going into the third and fourth quarters.
Prepayment of Debt
Debt is a significant concern as it hampers financial flexibility for Delta Airlines. The adjusted net debt at the end of the June quarter stood at $18.3 billion for the company. This is $7.8 billion higher than at the end of the fourth quarter in 2019.
The rise in debt is understandable considering the high operational costs and low revenues which Delta Airlines faced during the pandemic.
However, on a positive note, the company managed to prepay $450 million of its debt during the quarter.
Investment in the Future
Delta Airlines expects the demand to continue on an upward trajectory in the future. In anticipation, they have been making significant investments in the future. Delta Airlines has announced that it will be purchasing 36 pre-owned aircrafts to add to its current fleet.
These aircrafts are expected to be added over a twenty-four-month period starting with summer 2022. The new aircrafts are expected to fly more efficiently and reduce maintenance cost of Delta Airline’s ageing fleet.
Wrap Up
Delta Airlines (DAL) has performed well over the last two quarters thanks to rising demand. The share price of DAL has also gained 59.2% over the last year. The second quarter earnings result adds another positive note to Delta Airline’s story.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
