Shares in Delta Air Lines (DAL 3.03%) were up around 3% as of afternoon trading today. The move comes as investors continue to digest an excellent set of first-quarter earnings released the previous day.
In a nutshell, the earnings report helped to assuage fears that the recovery in the commercial aviation markets would be stalled by a combination of geopolitical tensions, rising fuel prices, and COVID-19 outbreaks in key Asian countries, China and Japan.
Fuel prices came in higher than expected in Q1. Still, Delta CEO Ed Bastian, on the earnings call, said, "[W]e are successfully recapturing higher fuel prices, driving our outlook for a 12 to 14 percent adjusted operating margin and strong free cash flow in the June quarter." For reference, management went into the quarter forecasting an adjusted fuel price per gallon of $2.35 to $2.50, only to watch the price hit $2.79. However, Delta more than made up for it by significantly beating revenue expectations. Having started the quarter expecting revenue to be 72% to 76% of that reported in the same quarter of 2019, Delta's adjusted revenue actually came in at 79%.
The revenue numbers are excellent, and management disclosed that Delta had a powerful March after an omicron-hit January and February. During the earnings call, CFO Dan Janki said Delta generated "a profit in March and positive cash flow for the quarter," driven by a recovery in the all-important business traveler.
Management believes that corporate travel is making a comeback. Consequently, its revenue forecast for Q2 calls for 93% to 97% of the level of the same quarter in 2019, with an operating margin of 12% to 14%.
Delta ended the quarter in fine shape, and the guidance for Q2 implies the continuation of an excellent trend. Investors have every reason to believe the commercial aviation recovery will continue through 2022, even with higher costs.