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4 Reasons Delta Can Survive the Financial Downturn

Delta has a plan to conserve its cash after experiencing heavy losses during the first quarter

All of the major airlines have taken a hit thanks to the spread of the novel coronavirus, including Delta Air Lines (NYSE:DAL). As demand for air travel plummeted by roughly 90%, DAL stock saw its revenue plunge right along with it.

DAL Stock: 4 Reasons Delta Can Survive the Financial Downturn
Source: Markus Mainka / Shutterstock.com

Last week, Delta reported its first-quarter earnings that showed that the company’s revenue is down 18% from a year earlier. Toward the end of March, Delta was losing about $100 million per day.

However, the earnings report wasn’t as bad as many investors feared. The company reported a net loss of 51 cents per share, whereas Wall Street was expecting the company to lose up to 70 cents per share.

But there’s no getting around the fact that the second quarter is going to be much worse for Delta. Most of the financial damage the company sustained happened during March since the fallout of the virus was happening in China during the first few months of the year.

Fortunately, Delta management does seem to have a plan to conserve its cash and make it through this economic downturn. Here are four reasons DAL stock may be able to make it out OK.

Delta Boosts Its Initial Debt Offering

One of the biggest problems the airlines are facing is how quickly they continue to burn through cash on a daily basis. That’s why Delta announced a new note offering to raise $3 billion. The offering was for senior secured notes and will be due between 2023 and 2025.

The Financial Times reported that Delta received such a positive response to its debt offering that the company  increased the offering to $5 billion. This would help the company bring its total liquidity up to $10 billion.

Delta Finds Ways to Cut Costs

Not only is Delta finding ways to raise additional funds, but the company announced that its total expenses will be down by about 50% in May. Since the company’s flights have decreased dramatically, this leads to obvious fuel savings. Plus, about 37,000 of Delta’s employees have taken a short-term, unpaid leave from the company.

Delta CFO Paul Jacobson had announced his retirement plans in February. But after the fallout of the coronavirus hit, Jacobson announced he would continue to stay on and help the company navigate the crisis.

Delta Is Resuming International Flights

Delta recently announced that in May, it will resume certain international flights. Most of these flights will be between North and South America, and the company will reinstate four daily flights to Canada.

However, routes to Europe, Africa, Asia and Australia suspended for the time being. But this is still good news for Delta because the routes it is opening up are areas where the company has strong sources of revenue.

Demand For Travel Will Eventually Resume

And finally, demand for air travel will eventually resume, though it will take a long time. Delta’s revenue will drop substantially during the second quarter, but after that, the company is hoping it will pick up somewhat.

Things will be rocky for DAL stock for a while but it seems likely that the company will be able to rebound. All in all, most experts say that it will likely take three years for air travel to return to pre-pandemic levels.

And Delta is better positioned to weather this crisis than many other airlines. The company came into the pandemic with a better balance sheet, and it seems to have access to plenty of funding options right now.

Jamie Johnson is a personal finance freelance writer and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial sites, including Credit Karma, Quicken Loans and Bankrate. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/4-reasons-delta-can-survive-the-financial-downturn/.

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