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Delta Air Lines (DAL +12%) is flying higher today after a strong Q2 report that showed signs of stabilization. DAL reported an EPS beat and record revenue for Q2. This is an encouraging sign for airlines generally, especially as DAL is the first to report in the industry. Notably, after many airlines paused guidance following the tariff announcements, DAL restored guidance for FY25, showing it is confident in its near-term outlook. With muted domestic travel demand and a turbulent macro economy, investors were closely watching this report to see if conditions had begun to stabilize for the summer travel season. These positives seem to be the signs investors were hoping for, sending the stock higher today.

• DAL reported record revenue for its June quarter, with adjusted revenue up approximately 1% yr/yr to $15.5 bln. On capacity, DAL noted that the industry is taking the appropriate steps to align supply with demand as it moves beyond the peak summer period. DAL has proactively adjusted capacity to address areas of softness, with reductions in main cabin and off-peak flying beginning in August.
• With demand showing signs of stabilization, a favorable industry supply backdrop, current fuel prices, and targeted capacity cuts, DAL believes it is well positioned to deliver full year results that reflect its diverse revenue model and durability.
• Another positive development was DAL increasing its dividend by 25%, thanks to its strong generation of free cash flow. Investors are clearly interpreting the dividend boost as management being confident in its near term outlook.
• Investors may recall that DAL suspended its full year guidance in early April following the tariff announcements. We view its decision to reinstate the full year guidance as a positive development.
• DAL's high margin premium cabin continued to show resilience, growing mid-single digits yr/yr and driving double-digit operating margins. Premium revenue grew 5% yr/yr, outpacing the main cabin. Loyalty revenue also grew 8% as customer engagement reached new records, with Millennial and Gen Z segments representing nearly 50% of the member base.
• Other airlines are moving higher today in sympathy with the strong report from DAL. As DAL is the first carrier to report, it helps set expectations for other airlines reporting results in the coming weeks. American Airlines (AAL +14%), Allegiant Air (ALGT +12%), Alaska Air (ALK +10%), Jet Blue Airways (JBLU +9%), Southwest Air (LUV +8%), and United Airlines (UAL +15%), are all flying higher today, with LUV soaring to levels not seen since summer 2023.

Overall, DAL's Q2 results are a constructive sign for both the company and the broader airline industry. The EPS beat, reinstated FY25 guidance, and dividend hike all signal improving fundamentals and management confidence. We think these are the main reasons why the stock is up sharply today. Prior to the report, investors were in wait-and-see mode. With the strong report today, investors appear to be getting back on board the airline industry.