#Earnings Outlook: Delta Air reports this week, giving investors a first look into U.S. airlines’ performances

Delta in December gave investors some hope, raising its outlook for the fourth quarter and promising “meaningful profitability” for this year. It called for an adjusted pretax profit of about $200 million for the fourth quarter.

American Airlines Group Inc.
AAL,
+1.20%
earlier Tuesday said it expects fourth-quarter revenue around $9.4 billion, down 17% from 2019 but above Wall Street consensus of revenue of $9.2 billion, according to FactSet.

Airline stocks have underperformed in the past 12 months but have held to gains for the most part. The U.S. Global JETS ETF
JETS,
+1.55%
has gained 1.3% in the past 12 months, compared with gains of around 23% for the S&P 500 index
SPX,
+0.60%
in the same period.

This year “will be much better than 2021, barring any additional (coronavirus) variants, and we see particularly business travel coming back,” said Marino Marin, managing principal at MC Square.

“You have a lot of pent-up demand for business travel,” Marin said. And while it is true that businesses have adapted to less travel and more remote meetings and business events, “if you want to be competitive and win that business, you need to be in front of your customer … it’s a competitive environment out there.”

Although the year is looking up and a recovery is likely, investors may have to wait a few months to see any green shoots. “We don’t believe we’ll see a substantial recovery before the summer,” Marin said. 

Wall Street consensus calls for an adjusted profit of 15 cents a share for Delta in the fourth quarter, which would be a second straight quarter in the black for airline, on sales of $9 billion. That would contrast with a loss of $2.53 a share on sales of $4 billion in the fourth quarter of 2020.

Delta’s “long-term recovery remains intact,” Stephen Trent with Citi said in a note Monday. The short-term impact of omicron and cost increases related to weather, however, have led the analyst to expect Delta on Thursday to guide for a “softer” first quarter.

“Although management seems likely to present a positive 2022 outlook, with omicron’s impact appearing less severe than the previous wave, this does not mean there’s no impact from omicron,” he said.

First quarter is likely to include a “shoulder period” when some demand impact from omicron and weather-related flight disruptions could pressure earnings. Of course, the sequential, seasonal passenger volume decline should also give the airlines a little breathing room on scheduling and staffing, he said.

Airlines have canceled thousands of U.S. flights in recent weeks, hobbled by COVID-19 outbreaks and winter weather on already stretched schedules and capacity.

Sheila Kahyaoglu, an analyst at Jefferies, estimated in a note this week that cancellations of about 20,000 flights between Dec. 24 and Jan. 5 represented about 5% of U.S. flights as compared with “typical” daily cancellations under 1% of U.S. flights as omicron took a “toll on labor availability.”

JetBlue Airways Corp.
JBLU,
+2.12%
“proactively” has canceled about 1,300 flights through mid-January due to staffing issues, while Alaska Air Group Inc.
ALK,
+1.46%
is cutting January departures by 10%, she said. Several carriers have offered pay incentives to crews in a bid to mitigate more cancellations.

American and United Airlines Holdings Inc.
UAL,
+1.01%
are slated to report their fourth-quarter results next week, with Alaska, JetBlue and Southwest Airlines Co.
LUV,
+1.71%
reporting on the last week of January.