• Delta variant and rising fuel prices are expected to hit recovery plans.
  • Analysts are projecting a loss from Delta.
  • Hope remains that vaccinations and summer travels could drive up revenue.

Wednesday will be an important day on the earnings calendar as airlines report their Q2 earnings. 

Delta airlines, one of America’s flagship airlines, will be among the announcers. The airline beat analysts’ consensus revenue projections last quarter, recording $4.2 billion against projections of $3.9 billion. 

Strong show in pre-Covid era and vis-a-vis the new era

Delta had shown a strong performance in the period leading up to the Covid-19 era. Between 2017 and 2019, it grew its revenue by $6 billion. It had grown its revenue by $6 billion to $47 billion. 

During that period, its EPS grew by almost 65% to $7.32. This was attributed to the two factors: lower costs of operations and high passenger numbers. Last year, passenger numbers dropped by 51%, and revenues reduced by 60%. 

Even though the vaccination campaign has been largely successful, much remains to be done, and the Covid-19 pandemic is still lingering. With that in mind, investors ought to manage their expectations. 

The delta variant has come just as the world was celebrating the milestones achieved following the vaccinations of millions of people. To exacerbate the situation for airlines, jet fuel prices have risen significantly in recent weeks.

High fuel prices and the new Covid variant posing a threat

High fuel prices and renewed travel restrictions mean high operating costs and low passenger numbers. Delta being an international carrier, also faces an uncertain future with regards to the recovery of international travel, which has taken a new hit from the delta variant. 

With this double threat on the airline industry, it would be reasonable to expect losses or be it less than the losses incurred in Q1. According to analysts’ estimates, Delta Air Lines (ticker: DAL) is expected to report revenue of about $6.2 billion and a $1.36 loss per share, for a total pre-tax loss of about $1 billion. Delta missed analysts’ expectations for EPS by $0.63 in Q1 of 2021.

Delta has lost about 12% since May, which pales in comparison to the 6 percent gain by the S&P 500 over the same period. This is also a significantly higher loss than its peers in the airline industry, going by NYSE Arca Airline Index’s loss of about 8 percent in the same period. 

However, some airlines have fared worse. Allegiant Travel, for example, is down by about 23% in the same period. Over the past year, Delta has gone to as low as $24.38 and risen to as high as $52.28 and was trading at $42.85 at the time of writing. 

Summer is the peak earnings season for the travel industry as millions of people free up time to visit various local and international destinations. Travel figures have certainly spiked this summer, and this is one of the reasons why fuel prices have shot up. However, the big difference is that most of the traveling is happening domestically. 

The rapid spread of the delta variant in Europe and Asia has led to new advisories and restrictions against international travel. This has impacted negatively on international passenger numbers, which is likely to reduce Delta’s earnings from the international market. 

Countries like Spain, France, Australia, and South Korea are among those that have imposed measures limiting travel and social interactions. 

Delta can still hope for better days, considering that the delta variant has not impacted the United States and that domestic travel brings in about 77 percent of the airline revenue.

In an effort to escape the fuel dragnet, Delta has been actively buying biofuel credits as a way of attracting waivers. That plan has not yielded the desired results so far and has instead run into a loss of over $345 million.

Technical analysis

Delta was trading at $42.85 at the time of writing. The signal line is currently above the MACD, with a few hours remaining before the earnings announcement. This signifies an optimistic market momentum, hoping to match or exceed analysts’ expectations. 

Delta Air Lines chart

If the announcement brings positive news, the short-term price is likely to rise to $45.46. At that point, the second resistance level will be at $47.52. However, if the news is not positive, the current support level at $41.03 could be breached, and the psychological support of $40 could be targeted.