DAL Stock: 4 Key Takeaways from Its Q2 Results
July 30 2021 - 7:22AM
Finscreener.org
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.
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