Delta Air Lines Inc. (DAL) reported its second consecutive quarterly loss as the U.S. airline pared back its flight capacity plans for August by 50% with demand stalling again amid a renewed rise in Covid-19 cases.
Delta ended the second quarter with an adjusted $2.8 billion net loss, or a $4.43 loss per share, as total adjusted revenue, which excludes refinery sales, plunged 91% to $1.2 billion year-on-year.
Looking ahead, the U.S. airline expects overall revenue for the September quarter will be only 20% to 25% of last summer, as demand growth flattened recently with the rise in Covid-19 cases. Meanwhile, business travel, which typically provides 50% of Delta’s revenue, has not yet returned in any meaningful way, the company added.
The “decline in revenue over last year, illustrates the truly staggering impact of the Covid-19 pandemic on our business. In the face of this challenge, our people have acted quickly and decisively reducing our average daily cash burn by more than 70% since late March to $27 million in the month of June,” said Delta’s CEO Ed Bastian. “Given the combined effects of the pandemic and associated financial impact on the global economy, we continue to believe that it will be more than two years before we see a sustainable recovery.”
Delta ended the June quarter with $15.7 billion in liquidity. The U.S. carrier had total debt and finance lease obligations of $24.6 billion with adjusted net debt of $13.9 billion. During the June quarter it recorded a write-down of $1.1 billion in its investment in LATAM Airlines and a $770 million write-down in its investment in AeroMexico following their financial losses and separate Chapter 11 bankruptcy filings.
The bleak outlook for a recovery of the aviation crisis pushed Delta shares down 2.7% to close at $26.11 on Tuesday. The stock plunged 55% this year as the steep plunge in passenger traffic fueled by the coronavirus-related travel restrictions has forced many global airlines, including Delta to park their planes, streamline operations and cut costs, as well as raise debt to boost liquidity.
Delta rose 5.3% in Tuesday’s after-market trading as Citigroup analyst Stephen Trent maintained a Buy rating on the stock with a $38 price target, saying that the airline’s liquidity “looks strong”.
“On the back of what was the most difficult quarter in aviation history, Buy-rated Delta’s response to the Covid-19 pandemic looks about as good as any global network carrier could have managed under the circumstances,” Trent wrote in a note to investors.
In line with Trent, the rest of the Street has a bullish rating outlook on the stock. The Strong Buy consensus breaks down into 9 Buys versus 3 Holds. What’s more, the $38 average price target implies investors may come home with a return of 46%, should the target be met in the next 12 months. (See Delta stock analysis on TipRanks).
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