By Sam Boughedda
Delta Air Lines (NYSE:DAL) expects its June quarter revenue to be fully restored to 2019 levels, boosted by broad-based demand and pricing strength across consumer, business, and international travel the company said Wednesday.
The carrier had previously said it expects adjusted revenue to be between 93% to 97% of pre-pandemic levels. However, it now sees unit revenues 7 to 8 points higher than expected with capacity 1 to 2 points lower than planned.
Delta sees adjusted revenue between $12.4 billion to $12.5 billion for the second quarter.
Meanwhile, an operating margin of 13% to 14% is 3 to 4 points lower than in 2019. However, this is due to lower capacity and a 70% increase in fuel prices.
The average fuel price per gallon in Q2 is now expected to be between $3.60 and $3.70, up from previous guidance of $3.20 to $3.35.
Despite inflationary and fuel cost pressures, airlines hope to benefit from a surge in demand during the summer as travel begins to return to pre-pandemic levels.
Cowen analyst Helane Becker maintained a Market Perform rating and $54 price target on the stock following Delta's guidance update. Becker said in a note to clients that they "are encouraged that Delta is raising its adjusted total revenue and adjusted EBIT margin guidance despite a challenging operating environment."
"Lower capacity will boost non-fuel unit costs. Higher revenue-related selling expenses and investments in operational reliability are also pressuring Delta's CASM-ex figure," the analyst wrote.
"We rate these shares Market Perform due to short-term concerns about Delta's ability to outperform in an environment where restrictions limit international travel," added Becker.
Furthermore, Goldman Sachs analyst Catherine O’Brien raised the firm's price target on Delta to $45, albeit from only $44 previously.
The analyst explained that Delta's move was similar to peers that have updated over the last couple of weeks.
"Delta also trimmed capacity plans, driving some additional unit pressure, which combined with higher fuel and the aforementioned better revenue outlook result in the company tightening its adjusted operating margin guidance to the high end of the prior range (now 13% to 14% vs. 12% to 14% prior). As a result, we are raising our June Q EPS forecast to $1.85 (vs. FactSet consensus of $1.45) from $1.65 previously," said O'Brien while maintaining a Neutral rating.
Delta shares are down more than 5% Wednesday.