Delta Airlines Earnings Preview: Why Delta Airlines Is Likely To Report An Earnings Miss For FY19

by Trefis Team
Delta Air Lines
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Delta Airlines (NYSE: DAL) is slated to release its full-year 2019 results on Tuesday, January 14. Trefis details expectations from the airline company in an interactive dashboard, parts of which are highlighted below. We believe that Delta Airlines will report weaker-than-expected revenues and earnings for FY 2019. We expect Delta to report revenues of $46.8 billion for the year thanks to growing capacity across destinations, although our estimate is slightly below the consensus figure of $46.9 billion. Also, earnings are likely to be around $6.67 (vs. consensus estimate of $7.01) due to a combination of lower-than-expected revenues and elevated operating expenses. That said, we believe that weaker-than-expected revenues and earnings for FY 2019 do not take away from Delta’s strong growth opportunity in the near future, and estimate Delta Airlines’ valuation to be $63 a share – roughly 5% above its current market price.

A Quick Look at Delta Airlines’ Revenues

Delta Airlines’ reported $43.5 billion in Total Revenues for full-year 2018. It includes three revenue streams:

  • Passenger Revenue: $40 billion in FY2018 (90% of Total Revenues). It represents income from the sale of air tickets and other ancillary offerings for the company’s mainline and affiliate carriers. If a ticket is sold and travel is yet to happen, the company recognizes income from such tickets as air traffic liability. Due to the complex structure of ticket pricing, cancellation and rescheduling, a certain portion of the liability is recognized as passenger revenues based on recognized historical patterns.
  • Cargo Revenue: $1 billion in FY2018 (2% of Total Revenues). It represents income freight and mail services.
  • Other Revenue: $4 billion in FY2018 (8% of Total Revenues). It comprises of the sale of loyalty points to credit card companies.

[1] Total Revenues expected to be slightly below consensus estimates

  • Passenger revenues contributed nearly 90% of the company’s total revenues and are driven by available seat miles, passenger yield, and occupancy levels.
  • Passenger revenues have been growing at a low single-digit rate in the last three quarters, primarily due to increasing capacity, stable occupancy level, and moderately growing yield.
  • Thus, we expect the company to report $46.7 billion in total revenues for the full year 2019.

[2] EPS expected to increase from $5.67 in 2018 to $6.67 in 2019, supported by lower fuel prices

  • After falling sharply in December 2018, crude oil prices have remained relatively stable at $60 a barrel in 2019.
  • As fuel expenses are nearly 20% of the operational costs for the company, lower fuel expenses should have had a positive impact on the net income margin.
  • We expect the company’s EPS to grow by 18% to $6.67 for full-year 2019.
  • Our valuation for Delta Airlines’ stock stands at $63 per share, driven by an EPS of $6.67 and a forward P/E multiple of 9.5.

You can input your own estimates for the company’s key metrics and see how that will affect the company’s stock price in our interactive dashboard.

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