What happened

Airline shares were under pressure Wednesday after Delta Air Lines (NYSE:DAL) became the first in the sector to post first-quarter results. Delta actually lost less money in the quarter than analysts had anticipated, but the airline was clear that things have only gotten worse since the first quarter ended.

Shares of Delta were down 4% as of 2:30 p.m. EDT, while shares of airlines deemed more vulnerable went down further -- American Airlines Group (NASDAQ:AAL) and Spirit Airlines (NYSE:SAVE) were both down more than 7%.

So what

Before markets opened Wednesday, Delta reported a first-quarter loss of $0.51 per share on revenue of $8.6 billion, compared to analyst expectations for a $0.70-per-share loss on sales of $8.9 billion. We came into earnings season knowing that airlines were likely to report massive losses due to the COVID-19 pandemic, but investors are interested in hearing what the companies say about their outlook for the future.

Delta sees no quick turnaround, saying it expects to bring total capacity down by 85% (year over year) by June. The company is also selling fewer seats on the flights it is flying to promote social distancing, which means preventing passengers from sitting in middle seats.

A Delta A321 parked at an airport

Image source: Delta Air Lines.

Delta is also making progress on the cost side, forecasting that total expenses in the second quarter will be down about 50% due to reduced flying and subsequent fuel savings, as well as consolidating airport facilities and temporarily closing airport lounges. It's also benefiting from 37,000 employees opting to take short-term unpaid leave, and from executive pay reductions.

The airline was burning through about $100 million per day in March, but hopes to have that burn rate moderate to about $50 million per day by the end of June. On a post-earnings call with investors, CEO Ed Bastian said Delta is preparing for an extended downturn, saying it could take up to three years before travel recovers.

There was no company-specific news from either American or Spirit, but both airlines are seen as far more vulnerable to an extended downturn than Delta is. American has the industry's highest debt load, and would be hitting a recession with its transformation plan still in its early stages. Spirit also has substantial debt relative to its peers, and so far has not secured funding from the payroll-protection part of the $50 billion airline bailout package.

Now what

Relative to expectations, I'd argue Delta's earnings report wasn't all that bad. We knew results would be terrible, but the company did a decent job laying out its path forward, and made a credible argument that it can survive this pandemic without a liquidity crisis.

But Delta came into this crisis one of the healthiest companies in the business, and just because it has the wherewithal to survive doesn't mean that's true of all industry participants. I'm hopeful American, Spirit, and all the airlines can avoid serious issues, but Delta paints a grim picture for the next few years. Until we see clear signs the pandemic is contained and travel begins to normalize, these stocks are likely to remain under pressure.