Delta full-year guidance ‘didn’t change one iota,’ analyst says

Citigroup Analyst Stephen Trent joins Yahoo Finance Live to discuss fourth-quarter earnings for Delta Air Lines, travel demand, the expectations for labor among the airline industry, and the outlook for Delta Air Lines for 2023 and 2024.

Video transcript

BRAD SMITH: Delta earnings flew above expectations for the fourth quarter, but the airline trimmed its guidance, citing profitability headwinds. And that's to come due to a new labor deal with its pilots' union. Citigroup analyst Stephen Trent joins us now. And let's break this down a little bit further because it's really kind of that comparison that we've continued to look back to versus 2019, and this being lighter than that, at least for the estimates for the first quarter here. But I want to get kind of broad strokes, your takeaway from the quarter.

STEPHEN TRENT: Yes, good morning, and thank you very much for having me. So I thought the quarter itself was quite fine. They beat consensus. And I think that's consistent with some of the data we've been seeing in the space. With respect to the first quarter reaction, I'm a little surprised that the market's taking it this negatively. So, yes, you do have the potential that the pilots' contract is starting to kick in here. But in the very first page of the earnings release, Delta mentioned over $500 million in profit sharing for next month. And it's likely that the Street hadn't anticipated that.

Now the other thing, of course, I think bigger picture, when you look at 2023, the guidance didn't change one iota. So is there going to be some modest lumpiness quarter to quarter? There always is in this industry. But we were quite encouraged to see the full year guide intact.

BRIAN SOZZI: Stephen, that-- we mentioned earlier on the show, Delta still looking for $7 per share in earnings for 2024. Is that too optimistic of an outlook, given the longer term outlook for jet fuel prices and life after the pandemic?

STEPHEN TRENT: Yeah, I think that's a reasonable outlook. So we still have countercyclical trends that are supporting ticket demand. So the way that people are traveling now, the balance of capacity that's in the market now, less regional, more premium cabin, and the way that average fares are still up considerably year over three-year-- or excuse me, now it's year over four-year. And when we also look at mix, you actually have loyalty program, co-branded card revenue really spooling up here.

So, you know, I don't think that's too optimistic at all. Jet fuel, that's a little harder to say. But certainly, the crude oil curve remains in backwardation. And I think we should see over the coming quarters, that [INAUDIBLE] cost tailwind coming through. And that should surprise-- excuse me, that should provide support this year and next year. So once again, I was encouraged to see no iota of change in 2023 or 2024's guidance adjustments.

JULIE HYMAN: Stephen, Delta is typically regarded as sort of best in class here among the airlines. If we have results that on the face of it, look fairly solid, and you see this kind of negative reaction, what does that tell us about the rest of the airlines when they report?

STEPHEN TRENT: Yeah, certainly, so one thing that the group is going through at the moment is, they're trying to cut agreements with their pilots. So, remember, when Delta put out the 2023 and 2024 guidance, that was actually after they had reached a tentative agreement with their pilots. One could assume that the guide for this year and next is at least partially baked in the cake, but not everybody's there. So you've had some of the airlines reach tentative agreements, and others are still trying to work that out.

So not everyone has the robust profit sharing structure that Delta has. And I'm sure I would imagine that their employees appreciate that profit sharing policy that they have, but we could see some lumpiness from some of the others on a short-term basis, as the group's still trying to cut agreements with their pilots, for the most part.

JULIE HYMAN: Well, we'll see what ends up happening with those pilot agreements and what it does do to cost, indeed. Citigroup analyst Stephen Trent, thanks so much for joining us to break this down this morning.