DAL Hits Turbulence as Higher Fuel Prices Pressure the Airline Industry

Sam (0:00)

We're back on Morning Trade Live and looking at some major airlines this morning. We are down across the board here. We do of course have oil prices picking up, but we got this report out from Delta this morning, and this could be the source. We're down two and a half on that name. United's down almost two, American down 1.8, Southwest down 9 tenths.

So let's go inside and dig in to what we learnt from Delta in this earnings report this morning. Joining us to do that is Patrick Mueller, who is the president over at Bella Advisors. Patrick, good morning to you, happy Friday. I can't even phrase it, Delta doesn't have a customer problem, it has a gas problem. So just talk us through your biggest takeaways from this report.

Patrick Mueller (0:37)

Absolutely, we're here in Atlanta, Sam, and we love some Delta here in Atlanta, the headquarters.

So when it comes to what's happening right now, it's all about gas prices, it's all about fuel prices, and you can just see this with gas prices that have been going up 60% over the last year. So that's got to be really tough to keep in a competitive advantage. And so with prices going up, and you've got them to try to keep their margins, it's going to be super thin. But we saw the earnings that came out today, and they weren't too far off. I mean, a few pennies away, but it was the bigger thing that's hitting the markets today was the future forecasting. And they brought that down pretty significantly from $6, $7 a share down to around $5 a share moving forward. So Wall Street didn't like that, and Delta owns their own refinery. So they've got a very competitive advantage on top of a lot of other airlines. And so that's why you're seeing other airlines getting beat up because their earnings haven't come out yet. So I think there's a lot of speculation of those earnings from other airlines.

Sam (1:40)

Yeah, I was going to ask, I mean, is that what Wall Street seems to be taking issue with right now, that they've actually had to cut their outlook, even though they are well hedged? Because this is very much a tone setter for the rest of the industry for the earnings season.

Patrick Mueller (1:54)

Absolutely, Delta is such a leader, and they've been very profitable, and it's a greatly run company.

That's the biggest thing is just gas prices, and they don't know where gas prices and oil prices are going to be going in the future. I think they're just being more cautious than they are optimistic at this point, because there's just so much uncertainty of what's going to be happening with fuel prices moving forward, but that hasn't stopped people from buying tickets. You see these flights are full, I fly all the time, and these flights are full, and first class, it's packed. So you got a lot of people that are not worried about spending that money on the top end of things, and then it's not affecting things, but it's just hurting people like everywhere else in their pocketbooks, whether it's at the grocery store, anything that has to be shipped and transported, we're feeling it in our pocketbooks right now.

Sam (2:48)

Yeah, and as you've pointed out, I mean, it certainly gives you a little bit of a hint to what to expect for the rest of the earnings and reporting season, because if one of the best airlines is struggling, I mean, as you say, buckle up for the rest, which is perhaps what we're seeing in the market right now. So what are you betting on right now? I mean, if you are looking to buy an airline stock, if you want to be invested in this segment of the market, are you betting on oil or are you betting on the consumer? Because as you say, the consumer is still coughing up.

Patrick Mueller (3:15)

I mean, people are still going to need to travel for business. It's not slowing down. I mean, we've got to be a little bit concerned with the rising consumer debt that's going on right now. You've got it at all time high. So how much of this right now is being financed and when are we going to start seeing that spending slowing down? That's the biggest thing that I'd be paying attention to. Moving forward that I think a lot of people aren't talking about is inflation, the rising rates right now, how that's hitting people's pocketbooks. You're seeing that with small cap companies right now and you're seeing that get beat up with the recent rates going up.