Delta Air Lines (DAL) reports… and you thought that the big banks led off earnings season. Heck, I bet there’s still a few folks out there who think that Alcoa (AA) still bats lead-off. Delta Air Lines posted the firm’s fourth quarter financial results on Thursday morning. Yes, the story is awful. With all things considered, this could have been, and probably should have been worse. Let’s talk about this, and see if we find it interesting as investors. As readers know, I have been long Southwest Airlines (LUV) for some time. I have written on that name as more worthy than its competitors, as the nature of its business is domestic, and I would think that domestic travel recovers ahead of international travel. If you have been with me since I told you I was getting into LUV, then you (we) are up 26% on that trade. I just wonder. Is it time to expand on exposure to the airline industry.
For the fourth quarter, Delta posted an adjusted EPS of $-2.53, which was a slight beat. GAAP EPS landed at $-1.19, which was an unexpectedly large beat of consensus. Revenue generation totaled $3.97 billion, which was understandably down 65% year over year, but better than most had projected. A load factor of 42% fell short of the 49% that Wall Street had been looking for, perhaps because available seat miles easily topped expectations. For the full year 2020, Delta lost close to $12.39 billion. The real positivity came in the form of reduced cash burn. For Q4 2020, Delta burned roughly $12 million per day, half of the average of $24 million burned every day in the third quarter. We could discuss the year over year swing from a sizable net profit to a sizable net loss, for the quarter or year. Really, what purpose does that serve. The years 2019 and 2020 are in no way comparable for the airline industry or for anything related to travel, hospitality, lodging, or recreation.
Management did look forward. CEO Ed Bastian admits to a short-term continuance of the difficulties faced by the industry, but also sees coming improvement. Bastian said “While our challenges will continue in 2021, I am optimistic this will be a year of recovery and a turning point that results in an even stronger Delta returning to revenue growth, profitability and free cash generation.” Delta is guiding Q1 2021 revenue down 60% to 65% Analysts were hoping for something below 50%. The company is also expecting capacity to run 35% lower, but also operating expenses to land 35% to 40% lower.
After the sloppy start to the year, however… the firm does see an inflection point where demand recovers and can be sustained as vaccine distribution and customer confidence both improve. I also caught something published at the Financial Times this morning that I think could speed such confidence. Have you heard of the Vaccination Credential Initiative? What this will be is a coalition of tech giants and healthcare concerns that will aim to provide verification that an individual has been immunized. In other words, if one wants to board a plane, train, or bus, they will have to provide a “vaccination passport.” The article cites Microsoft (MSFT) , Oracle (ORCL) , and the Mayo Clinic as part of the coalition among others. Some will be offended. I for one, think that if this can be done, it is a great idea. I know I won’t want to travel next to someone who may not be vaccinated in the future.
Readers will note a fairly choppy recovery for DAL (and the airline industry) that runs from a low in May (not March) and culminates in early December. That is where we begin, so let’s zoom in there.
What we have here is a basing period of consolidation coming in the wake of a significant rally. All this morning’s rally really does is move the last sale toward the middle of this recent range. It is important to note the stock has consistently found support at the 50 day SMA. That’s a positive. I need more upside momentum than this, to provoke my inner bull. I need a take and hold of the $44 pivot point that this base has created. You give me that, and I can maybe think about giving you back $51. Until that happens, I see the $44 level as potential resistance, and I stick with just one airline on my book, which is not Delta.
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