Delta Airlines (DAL) earnings release for the 3rd quarter of their 2021 fiscal year
Category: Delta Airlines (DAL)
Date: 14 October 2021 Stock Price of Delta (DAL): $41.03 Market Capital of Delta (DAL): $26.3 billion We take a look at the 3rd quarter earnings report of their 2021 fiscal year of Delta Airlines, a U.S global airline company that used to have over 5000 departing flights on a daily basis across the world. For the quarter the group reported GAAP revenues of $9.15 billion and reported net income of $1.21 billion.
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Ed Bastian, Delta's chief executive officer - While demand continues to improve, the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter. As the recovery progresses, I am confident in our path to sustained profitability as we continue to provide best-in-class service to our customers, strengthen preference for our brand, while creating a simpler, more efficient airline"
About Delta Airlines (DAL)
Delta Air Lines (NYSE: DAL) is the U.S. global airline leader in products, services, innovation, reliability and customer experience. Powered by its 80,000 people around the world, Delta continues to invest in its people, improving the air travel experience and generating industry-leading shareholder returns.
Headquartered in Atlanta, Delta offers more than 5,000 daily departures and as many as 15,000 affiliated departures including the premier SkyTeam alliance, of which Delta is a founding member. Delta serves nearly 200 million people every year, taking customers across its industry-leading global network to more than 300 destinations in over 50 countries.
Headquartered in Atlanta, Delta offers more than 5,000 daily departures and as many as 15,000 affiliated departures including the premier SkyTeam alliance, of which Delta is a founding member. Delta serves nearly 200 million people every year, taking customers across its industry-leading global network to more than 300 destinations in over 50 countries.
Overview of Delta Airlines 3rd quarter 2021 earnings report
- Adjusted pre-tax income of $216 million excludes a $1.3 billion net benefit related to the second payroll support program extension (PSP3) partially offset by debt extinguishment charges and mark-to-market adjustments on our investments
- Adjusted operating revenue of $8.3 billion, which excludes refinery sales, was 66 percent recovered versus September quarter 2019 on capacity that was 71 percent restored. Sequentially versus the June quarter 2021, adjusted operating revenue improved by $1.9 billion, or 30 percent, on an 11 percent increase in capacity
- Total operating expense, which includes the remaining $1.8 billion of benefit related to PSP3, decreased $3.5 billion compared to the September quarter 2019. Adjusted for the benefit related to PSP3 and costs from third-party refinery sales, total operating expense decreased $2.6 billion or 25 percent in the September quarter 2021 versus the comparable 2019 period
- Remuneration from American Express in the quarter was just over $1 billion, up 1 percent compared to September quarter 2019
- Generated $151 million of operating cash flow and invested $619 million back in the business
- At the end of the September quarter, the company had $15.8 billion in liquidity, including cash and cash equivalents, short-term investments and undrawn revolving credit facilities
- Led the industry on key operating metrics, including a record combined completion factor of 99.72 in August for both mainline and Delta Connection. These operating results and other enhancements to the customer experience supported domestic net promoter scores above September quarter 2019 levels
Delta Airlines' management commentary on their 3rd quarter 2021 earnings report
ATLANTA, Oct. 13, 2021 – Delta Air Lines (NYSE:DAL) today reported financial results for the September quarter 2021 and provided its outlook for the December quarter 2021. Highlights of the September quarter 2021 results, including both GAAP and adjusted metrics, are on page six and are incorporated here.
“Our September quarter marked an important milestone in our recovery, with our first quarterly profit since the start of the pandemic,” said Ed Bastian, Delta’s chief executive officer. “Our revenues reached two-thirds of 2019 levels thanks to the industry-leading operational performance our people delivered through a busy summer, once again showing why they are the best in the business.”
“While demand continues to improve, the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter. As the recovery progresses, I am confident in our path to sustained profitability as we continue to provide best-in-class service to our customers, strengthen preference for our brand, while creating a simpler, more efficient airline.”
“Our September quarter marked an important milestone in our recovery, with our first quarterly profit since the start of the pandemic,” said Ed Bastian, Delta’s chief executive officer. “Our revenues reached two-thirds of 2019 levels thanks to the industry-leading operational performance our people delivered through a busy summer, once again showing why they are the best in the business.”
“While demand continues to improve, the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter. As the recovery progresses, I am confident in our path to sustained profitability as we continue to provide best-in-class service to our customers, strengthen preference for our brand, while creating a simpler, more efficient airline.”
Revenue Environment
“Generating a profit for the quarter even with a majority of our corporate and international customers still to return is a great achievement. I am also encouraged by our relative revenue performance, as we expect a record September quarter unit revenue premium. Our ability to deliver a sustained unit revenue premium throughout the pandemic demonstrates the success of our customer-centric and revenue diversification strategies,” said Glen Hauenstein, Delta’s president. “Our revenue recovery has shown strong progression through the course of the year as our customers return to the skies. With robust holiday demand and an expected improvement in corporate and international demand, we expect total December quarter revenue to recover to the low 70s percentage relative to 2019.” Operating revenue, adjusted of $8.3 billion for the September quarter 2021 improved 30 percent, or $1.9 billion from June quarter 2021. Compared to the same period in 2019, operating revenue, adjusted was 66 percent restored, in line with the company’s initial revenue guidance even as case counts from the COVID-19 variant impacted demand in August and early September. Total passenger revenue was 63 percent recovered in the September quarter 2021 compared to September quarter 2019 on system capacity that was 71 percent restored compared to 2019 levels. Compared to the June quarter 2021, system yields improved 4 percent and system load factors improved 11 points to 80 percent. As a result, total unit revenue, adjusted improved 17 percent sequentially.
Cost Performance
“Leading the industry on operational performance and achieving our goal of profitability for the quarter with an adjusted pre-tax profit of $216 million are great accomplishments and a testament to the perseverance of the Delta people,” said Dan Janki, Delta’s chief financial officer. “Our focus remains on restoring the airline to prepare for the next leg of the recovery, building upon our leadership position for the years ahead.” Total operating expenses, adjusted of $7.8 billion in the September quarter 2021 increased 12 percent sequentially, primarily driven by non-fuel costs from the continued restoration of the airline. Compared to September quarter 2019, total operating expenses, adjusted were down $2.6 billion or 25 percent. Fuel expense, adjusted increased 5 percent compared to the June quarter 2021 as lower fuel prices partially offset an 11 percent increase in capacity during the September quarter 2021. Adjusted fuel price of $1.94 per gallon was down 8 percent compared to the June quarter 2021 driven primarily by a refinery contribution versus a loss in the June quarter 2021. Carbon offsets expensed during the quarter drove a 4¢ impact on fuel prices as Delta fulfills its commitment to be a global carbon neutral airline by pursuing high quality, verified offsets.
During the September quarter 2021, fuel efficiency, defined as gallons per 1,000 ASMs, improved 4.2 percent versus the same period in 2019 as a result of our fleet renewal efforts. Non-fuel costs, adjusted of $6.3 billion increased 14 percent sequentially on an 11 percent increase in capacity and a 30 percent increase in adjusted revenue. Additionally, there was an increase in maintenance, training and other people-related costs required to support the restoration of the airline in the quarter as the company positions for further demand recovery in 2022. Compared to the September quarter of 2019, non-fuel unit costs (CASM-Ex) were 15 percent higher. Non-operating expense for the September quarter 2021 was $673 million including mark-to-market losses on certain of our investments and losses on the extinguishment of debt. Non-operating expense, adjusted was $219 million, $6 million lower than June quarter 2021 driven by lower net interest expense, partially offset by other nonoperating expenses.
Balance Sheet, Cash and Liquidity
“Balance sheet management remains a key priority for Delta as we chart our return to investment grade metrics in the coming years,” Janki said. “Over the last 12 months, we have reduced our financial obligations by $12 billion. During the September quarter, we used excess cash to reduce gross debt and interest expense while rebuilding unencumbered assets and managing our debt maturity profile.” 4 At the end of the September quarter 2021, the company had total debt and finance lease obligations of $27.8 billion with adjusted net debt of $19.3 billion. The company’s total debt had a weighted average interest rate of 4.2 percent at September quarter-end. In addition to maturities and normal amortization of nearly $184 million, the company completed a $1 billion debt tender offer, acquired aircraft with cash rather than financing those acquisitions and executed $276 million of open market debt repurchases in the September quarter 2021. Since October 2020, Delta has reduced its financial obligations by $12 billion in aggregate via pension contributions and paydown of debt, including normal amortization. These actions have driven interest savings, freed up previously secured collateral, fully funded the pension on a Pension Protection Act basis and improved the company’s debt maturity profile. Operating cash flow during the quarter was $151 million. Free cash flow was negative $463 million for the quarter with net capital expenditures reinvested in the business of $619 million. The company’s Air Traffic Liability was $6.4 billion at September quarter-end, $562 million lower than at the end of the June quarter due to the impact the variant had on cash sales and normal seasonality. Travel credits at September quarter-end accounted for approximately 40 percent of the Air Traffic Liability and represented approximately 8 percent of average daily bookings during the quarter. Delta ended the September quarter with $15.8 billion in liquidity, including $2.6 billion in undrawn revolver capacity.
Fleet
Today the company announced the incremental acquisition of two used A350 aircraft with deliveries planned for the December quarter 2021. Year to date and including today’s announcement, the company has finalized several fleet transactions, including the exercise of 55 A321neo options scheduled to deliver between 2022 and 2027 and agreements to acquire 38 gently used aircraft in the secondary market. These opportunistic acquisitions are consistent with the broader fleet strategy, complementing other actions taken over the last 18 months as the company accelerates fleet renewal efforts and prepares for continued recovery. Renewal efforts progress Delta towards a simpler, more efficient and sustainable fleet while also elevating product and customer experience.
“Generating a profit for the quarter even with a majority of our corporate and international customers still to return is a great achievement. I am also encouraged by our relative revenue performance, as we expect a record September quarter unit revenue premium. Our ability to deliver a sustained unit revenue premium throughout the pandemic demonstrates the success of our customer-centric and revenue diversification strategies,” said Glen Hauenstein, Delta’s president. “Our revenue recovery has shown strong progression through the course of the year as our customers return to the skies. With robust holiday demand and an expected improvement in corporate and international demand, we expect total December quarter revenue to recover to the low 70s percentage relative to 2019.” Operating revenue, adjusted of $8.3 billion for the September quarter 2021 improved 30 percent, or $1.9 billion from June quarter 2021. Compared to the same period in 2019, operating revenue, adjusted was 66 percent restored, in line with the company’s initial revenue guidance even as case counts from the COVID-19 variant impacted demand in August and early September. Total passenger revenue was 63 percent recovered in the September quarter 2021 compared to September quarter 2019 on system capacity that was 71 percent restored compared to 2019 levels. Compared to the June quarter 2021, system yields improved 4 percent and system load factors improved 11 points to 80 percent. As a result, total unit revenue, adjusted improved 17 percent sequentially.
Cost Performance
“Leading the industry on operational performance and achieving our goal of profitability for the quarter with an adjusted pre-tax profit of $216 million are great accomplishments and a testament to the perseverance of the Delta people,” said Dan Janki, Delta’s chief financial officer. “Our focus remains on restoring the airline to prepare for the next leg of the recovery, building upon our leadership position for the years ahead.” Total operating expenses, adjusted of $7.8 billion in the September quarter 2021 increased 12 percent sequentially, primarily driven by non-fuel costs from the continued restoration of the airline. Compared to September quarter 2019, total operating expenses, adjusted were down $2.6 billion or 25 percent. Fuel expense, adjusted increased 5 percent compared to the June quarter 2021 as lower fuel prices partially offset an 11 percent increase in capacity during the September quarter 2021. Adjusted fuel price of $1.94 per gallon was down 8 percent compared to the June quarter 2021 driven primarily by a refinery contribution versus a loss in the June quarter 2021. Carbon offsets expensed during the quarter drove a 4¢ impact on fuel prices as Delta fulfills its commitment to be a global carbon neutral airline by pursuing high quality, verified offsets.
During the September quarter 2021, fuel efficiency, defined as gallons per 1,000 ASMs, improved 4.2 percent versus the same period in 2019 as a result of our fleet renewal efforts. Non-fuel costs, adjusted of $6.3 billion increased 14 percent sequentially on an 11 percent increase in capacity and a 30 percent increase in adjusted revenue. Additionally, there was an increase in maintenance, training and other people-related costs required to support the restoration of the airline in the quarter as the company positions for further demand recovery in 2022. Compared to the September quarter of 2019, non-fuel unit costs (CASM-Ex) were 15 percent higher. Non-operating expense for the September quarter 2021 was $673 million including mark-to-market losses on certain of our investments and losses on the extinguishment of debt. Non-operating expense, adjusted was $219 million, $6 million lower than June quarter 2021 driven by lower net interest expense, partially offset by other nonoperating expenses.
Balance Sheet, Cash and Liquidity
“Balance sheet management remains a key priority for Delta as we chart our return to investment grade metrics in the coming years,” Janki said. “Over the last 12 months, we have reduced our financial obligations by $12 billion. During the September quarter, we used excess cash to reduce gross debt and interest expense while rebuilding unencumbered assets and managing our debt maturity profile.” 4 At the end of the September quarter 2021, the company had total debt and finance lease obligations of $27.8 billion with adjusted net debt of $19.3 billion. The company’s total debt had a weighted average interest rate of 4.2 percent at September quarter-end. In addition to maturities and normal amortization of nearly $184 million, the company completed a $1 billion debt tender offer, acquired aircraft with cash rather than financing those acquisitions and executed $276 million of open market debt repurchases in the September quarter 2021. Since October 2020, Delta has reduced its financial obligations by $12 billion in aggregate via pension contributions and paydown of debt, including normal amortization. These actions have driven interest savings, freed up previously secured collateral, fully funded the pension on a Pension Protection Act basis and improved the company’s debt maturity profile. Operating cash flow during the quarter was $151 million. Free cash flow was negative $463 million for the quarter with net capital expenditures reinvested in the business of $619 million. The company’s Air Traffic Liability was $6.4 billion at September quarter-end, $562 million lower than at the end of the June quarter due to the impact the variant had on cash sales and normal seasonality. Travel credits at September quarter-end accounted for approximately 40 percent of the Air Traffic Liability and represented approximately 8 percent of average daily bookings during the quarter. Delta ended the September quarter with $15.8 billion in liquidity, including $2.6 billion in undrawn revolver capacity.
Fleet
Today the company announced the incremental acquisition of two used A350 aircraft with deliveries planned for the December quarter 2021. Year to date and including today’s announcement, the company has finalized several fleet transactions, including the exercise of 55 A321neo options scheduled to deliver between 2022 and 2027 and agreements to acquire 38 gently used aircraft in the secondary market. These opportunistic acquisitions are consistent with the broader fleet strategy, complementing other actions taken over the last 18 months as the company accelerates fleet renewal efforts and prepares for continued recovery. Renewal efforts progress Delta towards a simpler, more efficient and sustainable fleet while also elevating product and customer experience.
Delta Airlines (DAL) stock chart over the last 5 years
The image below shows the stock price history of Delta Airlines (DAL) over the last 5 years. And its not been a good time for Delta Airlines stockholders with the stock increasing by a mere 9.3% over the last 5 years. Not the type of returns investors would like to see but considering the impact of Covid-19 any gain by airline stocks over this period should be celebrated.
The stock of Delta Airlines is trading at close to the midpoint between its 52 week high and 52 week low which is an indication to us that the short term sentiment and momentum of Delta's stock is neutral at this point in time.
The stock of Delta Airlines is trading at close to the midpoint between its 52 week high and 52 week low which is an indication to us that the short term sentiment and momentum of Delta's stock is neutral at this point in time.
Delta (DAL) vs Southwest Airlines (LUV) vs American Airlines (AAL) stock over last 5 years
The image below shows the stock price performance of Delta Airlines (DAL), Southwestern (LUV) and American Airlines (AAL) over the last 5 years. As the image shows its been a pretty horrible time for the stocks of airline companies. Over the 5 year period all three these airline stocks lost investors money. Below the returns of the three airline stocks (sorted from best to worst performer)
- Southwest Airlines: 21%
- Delta Airlines: 9.3%
- American Airlines: -53.8%
Delta Airlines ( DAL) latest stock valuation
So what is Delta Airlines' stock worth based on the release of their 3rd quarter 2021 earnings report provided by Delta Airlines? Based on the latest earnings results, and the difficult period Delta is facing our valuation models provide a target price (full value price) for Delta Airlines at $67.90 a Delta Airlines stock (up slightly from our 2nd quarter 2021 earnings report valuation of Delta Airlines). Thus we forecast a stock price for Delta Airlines by October 2022 to be at $62.10
We therefore believe that the stock is undervalued at its current price of $41.03
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target price (full value price) which in this case is $67.90. Therefore we see a good entry point into Delta Airlines stock at $61.10 or below.
Since Delta Airlines is trading at well below our suggested entry point into the stock we rate Delta Airlines as a buy.
We therefore believe that the stock is undervalued at its current price of $41.03
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target price (full value price) which in this case is $67.90. Therefore we see a good entry point into Delta Airlines stock at $61.10 or below.
Since Delta Airlines is trading at well below our suggested entry point into the stock we rate Delta Airlines as a buy.
Next earnings release of Delta Airlines
It is expected that Delta Airlines will release their 4th quarter 2021 earnings report in middle January 2022