Delta Air Lines (NYSE: FROM THE) - American carrier, which works except for the USA in 50 countries. Before the coronavirus pandemic, the company served almost 200 million people annually, making daily air passenger and cargo flights.
In mid-January, Delta Air Lines presented a report for the fourth quarter of 2021, which was better than market expectations:
- revenue increased by 138% compared to 2020 and fell by 17% compared to 2019, up to $9.470 billion, exceeding market consensus of $9.29 billion;
- adjusted net earnings per share in the current quarter increased to 0,22 $ when forecasting 0,14 $. The main reason is the gradual recovery of passenger traffic.;
- CASM, one of the main indicators of the efficiency of air transportation, practically did not change year-on-year and amounted to 12,56 $;
- the company's flight congestion has fallen from 86 to 78% compared to pre-pandemic levels;
- adjusted net debt rose to $20.581 billion.
Sales structure of the company
Delta Air Lines business consists of three segments: transportation of passengers, freight transportation of goods and non-core activities. The first direction operates in two markets: American and international. Management still divides the international segment into three parts: Atlantic, Latin America and the Pacific.
The second division is closely related to the first.: the goods are transported by using the cargo space on regular passenger flights. And the third business of Delta Air Lines includes income from subsidiaries, loyalty programs and other activities.
2021 the year was very difficult, but the company still managed to turn a profit in the second half of the year, mainly due to strong demand and high prices during the holiday period, as well as through excellent sales of premium products, income from which recovered at an accelerated pace.
Delta Air Lines' core business is still far behind 2019: passenger traffic revenue in the fourth quarter fell by 29%, up to $7.241 billion, against the background of weak results of two directions: Atlantic and Pacific. Wherein, if you look at the December data, can be seen, that performance continues to improve: the fall compared to the same period in 2019 amounted to only 20%.
Company sales structure for 4 neighborhood, billion dollars
| 2019 | 2020 | 2021 | |
|---|---|---|---|
| Transportation of passengers in the USA | 7,612 | 2,229 | 5,951 |
| Transportation of passengers to countries, having access to the Atlantic Ocean | 1,338 | 0,157 | 0,617 |
| Transportation of passengers to Latin American countries | 0,703 | 0,234 | 0,560 |
| Transportation of passengers to countries, having access to the Pacific Ocean | 0,591 | 0,078 | 0,113 |
| Cargo transportation | 0,187 | 0,204 | 0,304 |
| Non-core activities | 1,007 | 1,071 | 1,925 |
Net income and debt
Delta Air Lines Q4 2021 Net Profit Falls From $1.099 Billion To -0.408 Billion Compared To 2019 Amid A One-Time Loss Of $0.564 Billion, which is connected with the investment activity of the company. The adjusted figure was higher for the second quarter in a row 0 and amounted to 0.143 billion dollars.
During the pandemic, the company's debt burden has doubled, that is why its reduction for the air carrier is now the main financial priority. By the end of 2024, management aims to achieve the following levels by restoring its balance sheet and generating strong operating cash flow:: adjusted net debt should fall from $20.6 billion to $15 billion, and the “adjusted net debt” multiplier / EBITDAR" - decrease from 4 up to 2-3.
The main financial results of the company for 4 neighborhood, billion dollars
| 2019 | 2020 | 2021 | |
|---|---|---|---|
| Revenue | 11,439 | 3,973 | 9,470 |
| EBITDA | 2,020 | −0,360 | 0,767 |
| Net profit | 1,099 | −0,755 | −0,408 |
| CASM | 11,59 $ | 12,57 $ | 12,56 $ |
| FCF | 0,141 | −1,615 | −0,441 |
| Adjusted Net Debt | 10,489 | 18,823 | 20,581 |
Market
After a strong recovery in the aviation market in early 2021, growth slowed significantly towards the end of 2021 amid reduced mobility of citizens due to restrictive measures in Europe and an outbreak of infections with a new strain of coronavirus in South Africa, which led to a significant increase in the incidence. 10 January 2022, an anti-record was even set: more than 3.2 million people have been diagnosed with COVID-19, past result - 1.9 million people.
Nevertheless, analysts of large banks do not see big problems in the current increase in the incidence and are already beginning to recommend their customers to return to the American air transportation sector due to the gradual recovery of passenger traffic.. For example, Bank of America recently upgraded Delta Air Lines to Buy from Neutral, target price - 48 $. This event can be considered a landmark, for BofA, this is the first recommendation in the air travel sector since the start of the COVID-19 pandemic.
Morgan Stanley, as well as Bank of America, also optimistic about US airline stocks. The Bank counts, that further market recovery in the second half of 2022 will allow companies in this sector to show strong results in 2023, which will turn out to be higher in terms of EBIT - earnings before interest and taxes - than in 2019.
Management forecasts
Now let's go directly to the forecast of the company itself.. Let's start with the short term: in the first quarter of 2022, management expects weak results due to omicron, which will have a moderately negative impact on the entire aviation industry only at the beginning of the year. This will lead to, that Delta Air Lines will receive a loss in January and February, but in March it can return to profit.
The situation should improve dramatically in the future., which will allow the US carrier to demonstrate excellent performance in the spring-summer tourist season and finish the remaining three quarters of 2022 with a profit.
Management Forecast
| 2019 | Forecast for 1k2022 | ||
|---|---|---|---|
| Flight congestion, Percent | 83 | 69—71 | |
| Revenue, billion dollars | 10,472 | 7,540—7,958 | |
| Fuel price for 1 gallon, Dollars | 2,06 | 2,35—2,50 | |
| CASM, Dollars | 11,06 | 12,72 | |
| Capital expenditures, billion dollars | 1,259 | 1,6 | |
| Adjusted Net Debt, billion dollars | 10 | 22 |
What's the bottom line?
Even with the reduced activity of citizens due to COVID-19, Delta Air Lines showed good financial results in the last three months of 2021, which continued to recover quarter by quarter. If in the third quarter of 2021 the company's revenue was 73% from pre-pandemic levels, then in the current period, this figure increased to 83%. Achievements 100% shareholders should wait no earlier than 2023, and then if the air carrier manages to reach its target levels of flight congestion.
