15 July 2020

Delta Air Lines Wings Clipped Again Amid Rising Infections

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News shaping
the markets today

     

What’s happening: Shares of Delta Air Lines Inc. declined on Tuesday despite the airline company reporting better-than-expected revenue for its second quarter.

What happened: Travel bans due to the covid-19 pandemic have forced even the major airlines to ground their planes. Most players in the space are lowering costs and raising capital to maintain liquidity for their very survival during the crisis.

There had been some hopes of a revival in travel demand as economies gradually reopened. However, Delta Air Lines, which has grounded over 90% of its passenger flights, warned of a dip in travel demand amid rising infections.

How were the results: The airline recorded a steep decline in revenue and swung to a net loss in the second quarter.

  • Revenue tumbled to $1.47 billion, from $12.54 billion in the same quarter last year, but exceeded the consensus view of $1.39 billion.
  • Delta Air Lines posted a net loss of $5.72 billion, or $9.01 per share, compared to net income of $1.44 billion, or $2.21 per share, in the year-ago quarter.
  • Adjusted loss came in at $4.43 per share, wider than the consensus estimate of $4.16 per share.

Why it matters: Delta Air Lines is again witnessing a decline in leisure demand, which had begun to recover in June, due to rising infections in tourist hotspots like Florida, California and New York.

The airline’s passenger revenue plummeted 94% to $678 million, while cargo revenue declined 42% to $108 million.

Management said that third-quarter revenue and flight capacity could be in the range of 20%-25% of summer last year. The company, which was planning to add 1,000 flights in August, now expects to add only 500 flights due to the resurgence of infections.

The airline ended the latest quarter with liquidity of $15.7 billion. The Atlanta, Georgia-based company managed to lower its daily cash burn by 70% in June versus late March, to $27 million. Delta expects its daily cash burn rate to remain stable at $27 million in July.

Over 17,000 employees opted for premature retirement or voluntary separation, while at least 45,000 workers have taken unpaid leave.

Delta CEO Ed Bastian said in a statement, “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.”

How shares responded: Shares of Delta Air Lines closed the regular session down 2.7% to, but recovered strongly in after-hours trading, rising around 5%. The airline’s stock has gained 6% over the last three months, but is still down by 55% year to date.

What to watch: The company will need to slow down its recovery plan due to the resurgence of infections. However, with travelers starting to fly again, investors expect Delta’s business to gradually return to a growth track.

The Markets Today

     

The British pound will be in focus today, ahead of a basket of economic reports due for release later in the day.

Context: The Sterling slipped towards the $1.25 level versus the US dollar on Tuesday, following some downbeat economic data from the UK. Investors also awaited news of the progress in Brexit talks with the EU.

Details: Although the UK’s GDP contracted by over 24% in May versus the same month last year, the economy grew by 1.8% compared to April. Despite this growth, investors were unimpressed, as it missed expectations of 5.5% growth by a wide margin and shattered hopes of a V-shaped economic recovery.

UK’s construction output declined much more than expected, down 39.7% in May, versus expectations of a 36.3% decline.

Meanwhile, the country’s trade surplus grew to £4.3 billion in May, from a revised £2.3 billion in the earlier month. Exports gained 3.5%, while imports slipped 1.7% during May. Industrial production also climbed 6% in May, after declining 20.2% in April.

Investor concerns around the lack of progress in Brexit talks, rising US-China tensions and a spike in coronavirus infections took a toll on the British pound yesterday.

The GBP/USD continued to succumb to selling pressure for the second consecutive session on Tuesday. The forex pair fell to a one-week low, trading down to the key 1.2500 psychological barrier.

The pair closed yesterday’s session at $1.2555 and was trading higher by 0.14% at $1.2573 in today’s Asian session.

What to watch: Investors await a basket of economic data from the UK, including consumer price inflation, retail price inflation and producer prices. Britain's consumer price inflation, which declined to 0.5% in May, is expected to drop to 0.4% in June. Factory gate prices of goods produced by the country’s manufacturers are projected to rise 0.2% in June, following a 0.3% decline in May.

Markets will continue to monitor the daily coronavirus numbers, with the global total approaching the 13.3 million mark.

Other Markets: US indices trading closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up 2.13%, 1.34% and 0.94%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

China’s foreign direct investment, Italy’s inflation rate, Canada’s new motor vehicle sales, manufacturing sales and Bank of Canada’s interest rate decision as well as the US import prices, export prices, New York Empire State manufacturing index, industrial production, manufacturing production, capacity utilization, EIA’s crude oil stocks and Fed’s Beige Book report.

 

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