Shares of the nation’s second-largest carrier in terms of passenger traffic jumped 2% higher today to $23.45 after Delta Air Lines (NYSE: DAL) reported newest results, beating EPS by $0.31 .
Delta, indeed, has been in dire straits. The company lost $35 a share, during its first quarter, leaving investors to wonder whether a turnaround was even possible without bailout protection. Its stock has tumbled 54% year-to-date, even with the latest run-up. In addition to tougher competition driving down air fares, the airline’s troubles have been compounded by the stock buybacks and the extremely rare occurrence of worldwide epidemic.
But a glimmer of optimism emerged this week when DAL raised cash in the capital markets as well as receiving grant money from CARES program. Should government give $50 billion to bail out airlines, to the same airlines that already invoked Chapter 11 of the U.S. bankruptcy code in 2005?
Cash no longer appears in as short supply as it was in the start of COVID induced crisis. However the company hasn’t been able to achieve meaningful cost cutting…pushing Fitch to lower Delta’s debt rating to “BB+” even though Delta remains a stronger credit than its network peers AAL or UAL.
Investors who took a chance on Delta’s shares, which could’ve been rendered worthless in case of no-bailout will probably get rewarded, but not before the end of 2020.
Despite Delta’s progress this week, the news was far from good elsewhere in the airline industry.
It’s going to take time for any cost-saving measures to get implemented. While Delta is implementing cost cutting, it is still paying high operating expenses. People working on a restructuring realize that there is a line somewhere, and when the cash hits that point, the company has to make a hard decision to file or not file for bankruptcy. But this is not 2005 and Trump probably wont allow major U.S. airline to go bankrupt during the pre-election period.
It’s a moving target. So, the question is, can Delta get its operating costs down before it burns through cash and financing ? It’s good that Delta is reducing expenses, but will the company be able to reduce them fast enough so that it doesn’t get to that line?