DAL - Delta Air Lines: A Rock Of Stability And Strong Performance

2024-02-16 01:02:31 ET

Summary

• Delta Air Lines reported strong earnings for Q4 2023 and full year 2023, outperforming its U.S. competitors in profit and net income margin but reduced its guidance for 2024.
• The Company generates revenue more efficiently and from more high-margin sources than its competitors.
• DAL's revenue growth potential lies in its global network, strong partnerships with foreign airlines, and non-transportation revenues such as loyalty and credit card programs.

The year 2024 started out with a number of significant news items that impacted the global and U.S. aviation industry. As the New Year began, a fiery accident at Japan's Tokyo Haneda airport involving two Japanese military and Japan Airlines aircraft shook an industry that has seen the rate of accidents drop as aviation becomes accessible to more and more of the world. Shortly after that, an Alaska Airlines ( ALK ) Boeing ( BA ) 737 MAX 9 jet lost one of its plugged emergency exits which further rattled the public's perception of aviation safety, resulting in an admission by Boeing's CEO that their production quality was lacking even if problems might exist elsewhere in their production system. The Alaska MAX accident resulted in an order from the FAA for Boeing to not increase production of its 737 jets as it intended to do, resulting in what is certain to be further delays in the certification of the MAX 7 and MAX 10 jets, the former of which is a significant new part of the generation aircraft order book for Southwest Airlines ( LUV ) and the latter of which forms a major piece of United's (UAL) order book. Later in January, a federal judge sided with the U.S. Dept. of Justice that the proposed merger of JetBlue ( JBLU ) and Spirit Airlines ( SAVE ) was uncompetitive and should be blocked and the shock waves for the industry came at a rapid speed at the beginning of a year that looked promising for an industry that had survived the COVID-19 pandemic with no U.S. carriers failing.

Strong Earnings but Reduced Guidance

In the midst of all that news, Delta Air Lines ( DAL ) reported its 4th quarter and full year 2023 results as the first U.S. airline and one of the earliest large companies to report its earnings, as it usually does. Delta's investor guidance often carries as much significance to the financial community and the industry as its earnings do. In its most recent guidance, analysts and investors quickly responded to a softening of Delta's bullishness in 2024, a year in which Delta expected a return to stronger business and international demand. While the U.S. domestic market came roaring back in the spring of 2022 and transatlantic demand began to reopen in that summer, many U.S. airlines were not properly staffed or had adequately prepared for an onslaught of strong demand and their operations suffered. Pushed by the U.S. DOT which was flooded by complaints of poor service, U.S. airlines aggressively hired over the 2022/2023 fall and winter periods, hoping to be ready for strong demand in the summer of 2023. Delta then led the big 4 (American, Delta, Southwest, and United) in settling a post-covid contract with its pilots in a rich deal that included almost $1 billion in retroactive pay and a healthy pay jump to offset the pilot staffing concerns that have plagued the industry for years. DAL offered pay increases to its flight attendants which included pay during boarding, a new concept for U.S. airlines, as well as for the remainder of its largely non-union workforce. All of those pay increases dented Delta's financial performance in early 2023 but Delta appeared confident that its earnings would rebound with strong demand beginning in the summer of 2023 and that indeed began to happen. A summary of Delta's 4th quarter and full year 2023 earnings follows....

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