Ca$htag$: Can DAL Deliver a Relief Rally After Earnings?

SPEAKER_1 (0:00)

Time now for our Cash Track Segment. For that, let's bring in our next guest, and that's Andy Swan, co-founder of LikeFolio, with new sentiment data on Delta Air Lines ahead of its quarterly report. Andy, it's good to be with you this afternoon. So Delta set to report, it's been an outperformer on a year-over-year basis with that stock up more than 40%, even with elevated oil prices. But let's get into your latest sentiment data. What does it look like?

Andy Swan (0:23)

Looks pretty good for the travel sector in general. We're seeing across-the-board increases year-over-year and people talking about booking a flight, looking for a flight, et cetera. I think for overall industry, that's up nearly 19% year-over-year. So consumers are really shrugging off the pricing, the oil prices, et cetera, at this point, and demand is heating up going into the fourth quarter, which is a good sign for Delta. When we look at it versus peers, really pretty even playing field. Delta up 11% year-over-year in terms of consumer demand growth. United leading the pack at plus 14% and the other is right pretty much in line. So overall, we think the travel sector is pretty strong here. Delta, their own guidance is above what Wall Street expects. So Wall Street's sandbagged this report a little bit going into the print.

Basically, I think based on oil price concerns and some of the profit margin pressures that the company is likely facing. So if Delta can come out and say we're able to hold our profit margins steady here and the consumer is looking pretty good in terms of travel, which is the message that we think they'll give, there could be an opportunity for a little bit of a relief rally here. Even though the stock's up considerably year-over-year, has pulled back into this and we think it gives a little bit of an asymmetric opportunity going into earnings.

SPEAKER_3 (1:56)

Andy, when you guys look at data like this, especially in this K-shaped economy, inflationary pressures, rising fuel costs, airlines have been pretty resilient, they've capped a lot of capacity, that's probably helped. But CEO Ed Bastion's basically said, hey, we're going to raise prices to offset these fuel surcharges that we're getting right now with crude oil above 90 bucks a barrel. How long does this last, Andy? Because you know what? I book flights all the time and the amount that I'm paying compared to last year and the year before, it just continues to grow. Is there going to be a breaking point? Or do you have to look more towards maybe unemployment data? If that starts to weaken a little bit, I think that's part of the reason with this K-shaped economy, everybody's got jobs, they're willing to travel, they're willing to pay a little bit more. But at some point, there's got to be a breaking point, right?

Andy Swan (2:48)

Yeah, I think we all feel that. We all feel every time we go to book a flight that I can't believe this is so expensive, but then we still go through with the purchase, and I think that's what Delta and all these airlines are counting on. The breaking point hasn't been hit yet.

These airlines have gotten since the pandemic, I think the pandemic was a massive turning point for these companies in terms of really optimizing their capacity, their flights, their pricing, and especially that premium mix of pricing that has boosted profits so much. Delta among the best at doing so.

I really think that was a massive turning point. These airlines have figured out profitability, how to pull the right levers at the right time, find that customer breaking point and stay just below it. So that's where we think things are at right now. It's definitely more expensive. It definitely hurts. I travel a lot and it hurts every time I log in to check the prices, but each and every time I go through with booking and you wonder where that break point is. The bottom line is we haven't reached it yet. And LikeFolio data is saying that very clearly as is TSA data, et cetera. People are still flying. The top part of that K-shaped economy is still very strong and Delta knows it.

SPEAKER_1 (4:14)

Andy, so we know what expectations are for the top and bottom line. We are expecting to see an increase on a year over year basis, whether we're talking about earnings or revenue and even from the prior quarter earnings we're expecting $1.93 on an adjusted basis. Now, when you think about the metrics that matter the most, is it about how much premium is holding up given how it helps margins or what metric do you think matters the most?