Wednesday, April 22, 2020

Will Delta Air Lines Crash In Q1 Following Low Travel Demand?

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What’s happening: Delta Air Lines is scheduled to report its first-quarter results before the opening bell on Wednesday, April 22.

What happened: This has been a terrifying year for the aviation industry, with various airline companies grounding their fleet due to travel restrictions imposed by governments to combat the COVID-19 pandemic.

Shares of Delta Air Lines were trading close to record highs last year but have nosedived over the past months. Delta will be the first airline to report its results this earnings season and investors are keeping an eye on this for insights into the damage caused to the industry by the virus outbreak and how other companies may report their results.

Despite the current grounding issues, Delta and other airlines are facing a huge opportunity as well.

Expectations for the quarter: Delta is likely to report a decline in revenue and a hit to its bottom line.

  • The consensus revenue estimate stands at $8.9 billion, versus $10.4 billion reported in the same quarter last year.
  • Delta is expected to report a loss of 74 cents per share, versus earnings of 96 cents per share in the year-ago quarter.

Why it matters: Various carriers have been focused to cut capacity due to the COVID-19 outbreak. According to data published by Airlines for America, global commercial flights declined to 28,000 per day in the week ending April 19, from 104,000 flights per day in the week ended March 7. The latest week also saw a 97% pullback in air travel.

The coronavirus outbreak pushed Delta to lower its system capacity by 15 points in March. The domestic capacity, which contributed to 72% of overall revenue in fiscal 2019, was cut by around 15%, while international capacity had to be lowered by as much as 25%. The company was forced to suspend its share repurchases and dividends to preserve liquidity.

Delta and other airlines are expected to record a sharp decline in passenger and cargo revenue in the latest quarter due to the global travel restrictions. However, the massive downturn in oil prices is a major opportunity for carriers to protect their bottom-line once travel restrictions are eased. Delta said that the decline in fuel prices is expected to offer an expense benefit of around $2 billion for the year.

How the shares have performed so far: Shares of Delta have been on a free fall since the beginning of this year. The stock has tumbled more than 60% year-to-date. Investors are also cautious heading into the company’s quarterly call, sending the shares down by 2.3% yesterday and by 6% over the last five trading sessions.

What to watch: Investors expect Delta to provide insights into the damage caused by the coronavirus outbreak to its business. The company is also likely to disclose its strategy for the upcoming period.

The Markets Today

     

Investors will be focusing on UK stocks today, ahead of economic data scheduled for release later in the day.

Context: London stocks closed lower on Tuesday, following a historic plunge in crude oil prices. The sterling was also down versus its major rivals in the previous session.

Details: The losses in equities came after WTI crude prices tanked over 300% to enter negative territory for the first time in history. WTI crude for May plunged to as low as -$40 per barrel on Monday, from around $50 per barrel before the coronavirus outbreak. Brent crude declined to $19.75 per barrel yesterday, from $26.22 on Monday.

The FTSE 100 index closed lower by 2.96% at 5,641.03, with energy and mining stocks among the top losers. The FTSE 250 also declined by 2.68% to settle at 15,399.25.

Shares of BHP fell more than 6% after the company reported a 6.3% surge in its third-quarter iron ore production. Other miner shares were mostly weaker on Tuesday, with Glencore falling 6.5% and Antofagasta down 8%.

The sterling posted strong losses against its major rivals. It dropped 1.43% versus the US dollar and 1.33% against the euro.

Investors also assessed the latest job numbers from the country, which showed the unemployment rate rising to 4.0% in February, from 3.9% in January. Job vacancies slipped by 52,000 to 795,000 during the quarter.

What to watch: Investors will be closely monitoring the daily coronavirus numbers. The number of positive COVID-19 cases in the UK has surpassed 130,170 with around 17,370 deaths. There is a total of 2,563,380 coronavirus cases globally with around 177,410 fatalities.

Markets await inflation and producer prices reports from Britain. The UK’s consumer price inflation, which declined to 1.7% in February, is expected to drop further to 1.5% in March. UK producer prices are projected to fall 0.4% in March, versus a 0.3% decline in February. Retail price inflation is expected to decline to 2.3% in March, from 2.5% in February.

Other Markets: US indices closed lower on Tuesday, with the Dow, S&P 500 and Nasdaq 100 down by 2.67%, 3.07% and 3.48%, respectively.

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What else to watch today

     

Turkey’s consumer confidence, Italy’s industrial new orders and industry sales, South Africa’s inflation rate, Eurozone’s government budget, government debt to GDP and consumer confidence, Saudi Arabia’s inflation rate, Canada’s inflation rate and new housing price index, Russia’s industrial production and gross domestic product, Argentina’s leading economic index and balance of trade as well as the US MBA mortgage applications, house price index and crude oil stocks change,