Key Takeaways- The Estimize consensus is calling for earnings per share for $1.66 on $10.61 billion in revenue, 1 cent higher than Wall Street on the bottom line and about in line on the top.
- Delta expects key PRASM metrics to fall 7% with 1% coming by way of the August outage that resulted in 2,000 flight cancellation
- The airline industry, Delta included, has faced significant headwinds including foreign currency pressure, mounting terrorist threat, weaker business flight demand, and increasing competition
Delta Air Lines (NYSE:DAL) is the first of the airlines to report this earnings season and will kick things off Thursday afternoon. Its scheduled third-quarter report is expected to set the tone for major airlines like United Continental (NYSE:UAL) and American Airlines (NASDAQ:AAL), which take the stage the following week. It appears as if Delta’s troubles won’t be easing with tomorrow’s report. Early signs are pointing to a continued slowdown on the top and bottom line.
Analysts at Estimize are calling for earnings per share of $1.66, down 4% compared to the same period last year. That estimate has declined 5% since Delta’s most recent report in July. Revenue for the period is anticipated 4% lower to $10.61 billion, marking a 5th consecutive quarter of negative sales growth. Investors can take comfort that the stock typically pops 1-5% in the 30 days following an earnings report.
Major airlines have faced significant headwinds lately from foreign currency pressures, mounting terrorist threats, weaker last-minute business flights and a simple reluctance to fly. Delta, in particular, has seen both revenue and earnings decline as a result. Last quarter printed a 16% jump on the bottom line, down from 193% the quarter prior, and a 2% decline on the top. Passenger revenue per available seat mile (PRASM), the key metric all airlines are measured by, fell 4.9%. These ongoing woes have played a role in share prices falling 22.5% this year.
The above issues are likely to play a role in Thursday’s pivotal report. Meanwhile, Delta is expected to see pricing pressure due to the highly competitive market. Low-budget airlines such as Southwest Airlines (NYSE:LUV) and Spirit Airlines (NASDAQ:SAVE) have captured greater market share through a more consumer friendly pricing model. Delta has already indicated that Q3 PRASM could decline by as much as 7%, with 1% coming from the outage it experienced in August. The disruption resulted in more than 2,000 flight cancellations and just as many refunds.
On a positive note, Delta will start flight services to Cuba, which is expected to provide the airline with a much-needed source of revenue. Delta also indicated that traffic figures for September 2016 were impressive. Any indication that Q4 guidance could be lifted is sure to put a smile on shareholders’ faces.
