Delta sees second-half profit as business travel picks up

Delta Air Lines Inc. predicted an earnings rebound in the second half as U.S. business traffic starts to revive this fall, following surprisingly strong summer demand for leisure trips.

Corporate travel is poised to recover to 60% of 2019 levels by September, up from 40% in June and 20% in March, Chief Executive Officer Ed Bastian said as Delta reported a narrower-than-expected loss Wednesday. The coming rebound in business flying echoes the earlier gains in leisure trips, which have “fully recovered,” Delta said in a statement.

“It’s accelerating just like we saw in the U.S. with consumers,” Bastian said in an interview. The company expects to be “solidly profitable” in the third and fourth quarters, he said.

Delta and its rivals are bracing for a crucial test as they try to return to profitability without relying on billions of dollars in U.S. government aid to weather the Covid-19 pandemic. The hoped-for return of corporate customers in the second half is particularly important for Delta, which got half of its 2019 passenger revenue from business travel.

“Domestic leisure traffic has fully recovered, and there are green shoots for business and international,” Conor Cunningham, an analyst with MKM Partners, said in a note. “The biggest focus from investors for Delta is on post Labor Day trends and the corporate recovery.”

Delta rose less than 1% to $41.67 at 9:35 a.m. in New York. The shares climbed 2.8% this year through Tuesday, by far the the smallest gain in the S&P 500 Airlines Index, which advanced 10%.

Bastian and his colleagues will discuss the outlook with financial analysts on a conference call at 10 a.m. New York time. Delta is the first major U.S. carrier to post second-quarter results, with United Airlines Holdings Inc., American Airlines Group Inc. and Southwest Airlines Co. scheduled to follow next week.

In the second quarter, Delta’s adjusted loss narrowed to $1.07 a share, better than the $1.42 average loss expected by analysts surveyed by Bloomberg. Adjusted revenue of $6.35 billion slightly surpassed analyst estimates. Sales were several times the level a year earlier, in the depths of the pandemic, but still about half what the figure was in 2019.

The 11 largest U.S.-based carriers will report a $4.9 billion operating loss for the second quarter, compared with a shortfall of $11.8 billion in the first, Deutsche Bank AG analyst Michael Linenberg estimated in a report Tuesday.

Including a $1.5 billion benefit from federal aid and other special items, Delta reported net pretax income of $776 million, or $1.02 a share. American on Tuesday forecast a “slight” second quarter profit, but also only after including bailout funds.

On an adjusted basis, analysts expect Delta to post earnings of 30 cents a share in the current quarter, and 72 cents in the fourth, according to data compiled by Bloomberg.

A Delta survey of its biggest corporate clients showed that about 95% will have their offices open before the end of the year, Bastian said, adding that he expects many will return after Labor Day in early September. Businesses plan to return to as much as 90% of pre-Covid travel levels, he said.

“Then when international markets are open, particularly European markets to the U.S., that’s another big piece of demand,” he said. “As those markets open, we’re going to see significant growth in business travel.”

Still, the timing remains uncertain, with the U.S. saying it’s not ready to lift restrictions on incoming international passengers and some other countries retaining quarantine requirements or other travel limits.

The U.S. requires a negative Covid test for anyone traveling into the country, and still prohibits entry from a number of other nations, including the U.K., Ireland and more than two dozen European countries.