Strong demand for flights coupled with a reduction in the number of flights will be a key storyline when United Airlines Holdings (NASDAQ:UAL) reports quarterly earnings after market close Wednesday. Could the recent earnings report from Delta Airlines, Inc. (NYSE:DAL) foreshadow what’s to come?
What Happened: Delta Airlines reported adjusted revenue of $12.3 billion for the second quarter, which the company said was 99% recovered versus the June 2019 quarter. Revenue from the company beat analysts’ expectations according to data from Benzinga Pro.
The company cited growing demand in the quarter, which helped offset a rise in fuel prices. Domestic demand was the key for the quarter and the company stated the “business recovery progressing.”
Many reports have shown that air travel demand is increasing, despite higher ticket prices for consumers. Ticket prices were down slightly from May to June, according to a CNBC report, which could play into the strong numbers from Delta and potentially other airlines for the second quarter.
On July 14, roundtrip flights averaged $375 in the U.S., down from a peak of $413 in May. The total remains up 13% from 2019 levels, which might mean airlines could continue to post strong revenue figures for the second and third quarters.
Factors weighing into airline profits are higher fuel costs, staffing issues and reduced flights. While travel demand remains high, rising inflation could become a negative catalyst for the sector and offset recent growth.
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What’s Next: United Airlines Holdings is set to report its quarterly report after market close Wednesday. Analysts see the company posting revenue of $12.17 billion, according to data from Benzinga Pro. The company missed a Street estimate for the first quarter with $7.57 billion in revenue.
American Airlines Group Inc (NASDAQ:AAL) will report quarterly earnings Thursday, July 21 before the market opens. The company recently said its second-quarter revenue is expected to be up 22.5% to the 2019 period of the same time, a slight increase from previous guidance of 20% growth.
Southwest Airlines Company (NYSE:LUV) is set to report on July 28 before the market opens.
After Delta’s reporting recently, investors will now have several items to zero in on in the reports from United Airlines Holdings and other airlines.
Delta cited the higher fuel costs in the second quarter hurting the bottom line. Delta doesn’t hedge fuel prices, which led to lower profits in the second quarter. United Airlines Holdings and American Airlines do not hedge fuel while Southwest Airlines and a few others do. A key in the earnings reports from peers will be if they have hedged in the second quarter or are hedging going forward to offset some of the volatility of rising fuel prices.
Another key will be guidance. While strong demand in the first and second quarters has been cited by airline executives, comments from executives on expectations for the third and fourth quarters could remain key for investors.
“With sustained strength in bookings, we expect September quarter revenue to be up 1 to 5 percent compared to 2019 with total unit revenue growth improving sequentially,” Delta President Glen Hauenstein said.
Some were surprised by the low growth expected by Delta in the third quarter after a strong second quarter report.
A higher guidance figure from United Airlines or a peer could provide a boost to all airline stocks, with Delta’s guidance perhaps being on the conservative side of things.
Delta also reported last week, when oil was higher than it is today. If the trend continues to see oil prices and gas prices fall, United could have more color when reporting Wednesday.
Price Action: Delta shares are up 14% since the opening bell on July 13 after second-quarter earnings were reported.
United Airlines shares are up over the same time period as a sympathy play with shares trading at $41.67 versus a 52-week range of $30.54 to $54.52.
The US Global Jets ETF (NYSE:JETS) is trading at $17.97 Wednesday at publication, versus a 52-week range of $15.89 to $25.20. The ETF counts Southwest Airlines, American Airlines and United Airlines as its three largest holdings at weightings of 10.3%, 10.1% and 10.0%, respectively.
