As major U.S. companies prepare to reveal their third-quarter financial results, investors are paying close attention to a number of major industries. In the airline sector, the main question being asked right now is just how bad the financial damage will be for the worst-hit companies. The first big airline to report their Q3 results was Delta Airlines (NYSE: DAL), which pretty much confirmed most investors concerns about the state of the industry.
In short, Delta is burning through cash at an alarming rate, although the prospect of further federal aid is preventing the stock from falling even further than it already has. The company said that it’s churning through approximately $18 million every day and hopes that it could reduce this down to $10 million per day. While the company had originally hoped to be out of negative territory this year, it seems that’s not going to happen after all.
“The virus has had a much broader impact over the course of the year than any of us were suspecting. We’re seeing a steady progression and steady improvement,” said Delta CEO Ed Bastian in an interview on Tuesday according to the Wall Street Journal.
This pandemic has been an even bigger problem for Delta since the company has focused significantly on targeting business travelers. While some small degree of regular, economy class flights have returned once more, flights for business or corporate reasons have barely improved since the lockdowns first came into effect.
On the plus side, Delta still has enough cash on hand for it to last quite a while. As of right now, Delta reported around $22 billion in cash, while having already cut costs significantly earlier this year. However, at a rate of $18 million per day, Delta’s current cash burn comes in at just under half a billion dollars per month.
Assuming things return to normal by 2022, the company has enough financial breathing room Delta to survive. The company also announced it had laid off as many as 1,900 pilots earlier this year as well. At the same time, Delta could expect billions in extra federal aid from the Trump administration, which has said it remains committed to providing substantial aid to industries such as aviation, among others.
Shares of Delta are down 3% in response to the news, extending what’s already been a rough year for the airline. Since the start of 2020, Delta’s stock is down around 50%. Most analysts currently covering the stock still are optimistic about the airline’s long-term chances, considering its current low price to be a good deal if you’re willing to wait it out for the long haul.
Delta Airlines Company Profile
Atlanta-based Delta Air Lines is one of the world’s largest airlines, flying to more than 325 destinations in 60 countries. Delta operates a hub-and-spoke system, where it gathers and distributes passengers across the globe through key locations in Atlanta, New York, Salt Lake City, Detroit, Seattle, and Minneapolis-St. Paul. Delta generated just over $41 billion in revenue during 2018 and operated a mainline fleet of more than 850 aircraft. – Warrior Trading News