Delta Air Lines (DAL, Financial) is set to release its third-quarter financial results. Analysts project revenue of $15.78 billion, a 1.9% increase year-over-year, with earnings per share anticipated at $1.56, a 23.2% decline. A global outage in July affected Delta significantly, leading to over 7,000 flight cancellations and an estimated earnings impact of $0.45 per share for the quarter.
Investors are keen to see Delta's response to the ongoing costs associated with the cancellations and the strategies it will implement to mitigate future risks. The company stands to benefit from a substantial drop in jet fuel prices since July, with prices in North America decreasing by nearly 25% compared to the previous year. This decline is expected to have a favorable impact on Delta’s fuel costs, which averaged $2.60 per gallon in the second quarter.
Another important metric to watch is Delta's EBITDA margin, which rebounded strongly to nearly 14% in 2023. The decrease in fuel prices is likely to positively affect this margin. Moreover, Delta's capacity utilization strategies and recent market share gains are factors that could influence its load factor.
Delta’s cargo business also shows promise, with second-quarter revenue rising to $199 million from $172 million the previous year, indicating recovery from a market downturn. Continued recovery in the third quarter could signify strong cargo market growth, positively impacting profitability.
The airline is expanding routes and services to capitalize on the robust demand for air travel post-pandemic. Delta recently announced a significant expansion of transatlantic flights for summer 2025, which will bolster its international business, a vital component of its future profitability growth strategy.
Delta is also modernizing its fleet, with investments that position it for long-term growth. The integration of 20 Airbus A350-1000 aircraft, which are over 20% more fuel-efficient than the models they're replacing, will enhance operational efficiency. Additionally, investments in overhauling Boeing 757 engines have shown notable cost benefits.
Delta's stock has risen nearly 28% this year. While it may not be as attractively priced as last year, strategic expansions and investments suggest considerable growth potential. The company has strengthened its balance sheet, becoming a more robust and efficient entity. With a forward P/E ratio of 8, its stock valuation should reflect its strong earning capacity.
