Please ensure Javascript is enabled for purposes of website accessibility

Why Delta Air Lines Shares Lost Altitude in July

By Lou Whiteman - Aug 3, 2020 at 4:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Early summer optimism that the worst of the airline rout is over faded as COVID-19 cases spiked higher.

What happened

Shares of Delta Air Lines (DAL 2.47%) lost 11% in July, according to data provided by S&P Global Market Intelligence, as investors grappled with continued uncertainty surrounding air travel during the COVID-19 pandemic. A recovery is going to take a long time, and most investors have decided to wait it out on the sidelines.

So what

We went into earnings season expecting airlines to post ugly second-quarter numbers, and the industry did not surprise. On July 14 Delta reported it lost $4.43 per share on sales of just $1.2 billion, even worse than the $4.12 per share loss on revenue of $1.4 billion that had been expected.

Given the extent to which COVID-19 had disrupted air travel, the estimates were little more than a shot in the dark, and Delta made it clear it doesn't expect conditions to improve much for the rest of the year. Delta is making progress bringing down cash burn, reporting average daily burn of $27 million in June, down from $43 million average daily burn for the entire quarter. The company had $15.7 billion in total liquidity as of June 30.

A Delta plane coming in for landing.

Image source: Delta Air Lines.

The stock drifted downward following the earnings release, but the sell-off really accelerated late in the month as COVID-19 cases increased and pessimism about the health of the overall economy grew. After a brief period of optimism early in the summer as states began to reopen and airlines started adding flights, it now appears airlines are more likely to shrink than to grow for the rest of 2020.

Overall, Delta expects third-quarter seats available for sale to come in at about 20% to 25% of last year's level. And the airline says it believes it will be "two years or more" before there is a sustained recovery. 

Delta posted a reminder that the recovery would be slow on the last day of the month, announcing it would add fewer flights in August than it originally intended.

Now what

Delta is without doubt full of risk and will need a while to regain altitude. But the stock, off 56% year to date and trading at less than 0.5 times more normalized annual sales, is cheap. And assuming the airline makes it through the pandemic without needing to reorganize in bankruptcy, I believe those buying in today will end up with outsized returns in the years to come.

Given the risks, Delta should not be a large part of anyone's retirement portfolio, but for those looking for high-risk, high-reward stocks and who don't mind some turbulence along the way, Delta is one to keep on the radar.

Lou Whiteman owns shares of Delta Air Lines. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$33.76 (2.47%) $0.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.