Delta Air Lines (DAL) reported strong first quarter results and offered an encouraging outlook yesterday morning. The stock hit a four-month high in early trade but pulled back in to last week's range and closed with a modest 1.6% gain as solid results were largely expected after last week's upside preannouncement.
Delta's first quarter adjusted earnings grew 28% and came in at the high end of the range that the company increased last week. Margins expanded despite higher fuel costs.
The nation's largest airline reported record first quarter revenue. Unit revenue, the key metric, grew 2.4%, exceeding guidance for +0-2% growth. Higher capacity, foreign exchange headwinds, the shift of Easter into the second quarter, and the government shutdown offset double-digit growth in domestic corporate revenue and a one percentage point benefit from the American Express card agreement. Business growth outpaced leisure as business fares grew 2%. Leisure trends were choppy but improved throughout the quarter.
Delta is not experiencing capacity constraints from the grounding of the 737 Max; this distinguishes the airline from peers Southwest (LUV) and American (AAL), both of which were forced to cut their first quarter outlooks.
Last night, budget airline Spirit Airlines (SAVE) became the latest carrier to cut its unit revenue forecast. The company cited lower-than-expected yields in the month of March and modestly higher capacity production driven by better-than-expected completion factors.
Importantly, Delta expects to maintain a healthy unit revenue premium to the industry as the company continues to execute on service and premium product offerings. Delta guided second quarter earnings and unit revenue mostly in-line with estimates.
On the call, management raised 2019 capacity growth guidance to 3-4% from +3%, revenue growth guidance to +5-7% from +4-6% and reaffirmed double digit EPS growth while guiding free cash flow to the high end of its $3-4 billion range.
The report seemed to confirm Delta's best of breed status among the big airlines while indicating economic growth remains benign.
Last night, mid-cap carrier JetBlue (JBLU) confirmed plans to start flying transatlantic routes to and from London from its hubs in New York and Boston. On the call yesterday, Delta said the Atlantic segment would return to unit revenue growth in the second quarter amid seasonal strength. Management was not concerned about JetBlue's ambitions as the Atlantic segment has always been competitive.
Focus will now shift to United Continental (UAL), which will report first quarter results on the afternoon of Tuesday, April 16.