Delta Air Lines (NYSE:DAL) is taking to the skies today — at least, DAL stock is. The prominent U.S. airline has seen shares rise by more than 6% this morning as the company prepares to report second-quarter 2022 earnings.
Delta isn’t the only airline whose stock is rising on pre-earnings momentum. American Airlines (NASDAQ:AAL) has gained more than 10% today and looks primed to keep climbing. But even as positive momentum mounts, some investors fear macroeconomic headwinds could quickly push the industry down.
DAL Stock and More: What to Expect from Q2 Earnings
Two clear trends have dominated the airline industry so far this summer: increasing travel and flight cancellations. July 4 brought considerable turbulence as airlines were unable to deal with the onslaught of travelers. “More than 1,000 flights have been canceled since Friday and over 12,000 were delayed, plaguing holiday travel,” reported InvestorPlace contributor Bret Kenwell last week.
Both AAL and DAL stocks started trending downward as flight cancellations stacked up, as did United Airlines (NASDAQ:UAL). Today, all three airline stocks are back in the green as earnings anticipation drives positive market momentum.
Delta’s report is scheduled for July 13 before trading begins. The company expects to report earnings per share (EPS) of $1.65, a year-over-year (YOY) increase of 254.2%. It estimates $13.4 billion in revenue, a YOY increase of almost 88%. Seeking Alpha reports that “over the last 3 months, EPS estimates have seen 12 upward revisions and 0 downward. Revenue estimates have seen 5 upward revisions and 0 downward.”
American Airlines has also set expectations high. The company forecasts its first quarterly profit since the onset of the Covid-19 pandemic upended the travel industry.
Reuters reports American Airlines’ projected revenue is $13.39 billion, up 12% from where the company stood in 2019. Its previous revenue forecast was for an increase between 11% and 13%. Additionally, the airline expects to reach a pre-tax income of $585 million during the quarter. “American Airlines’ overall guidance looks modestly positive, with revenue stronger than expected,” note Citi Analyst Stephen Trent.
Bracing for Turbulence
Despite these rosy forecasts, investors have plenty of cause to regard airline stocks with caution. As Reuters notes, experts are “looking for clues to gauge the strength of consumer demand beyond the busy summer travel season.” That may be where some investors encounter troubling factors.
The trend of flight cancellations has indeed cast doubt over airlines’ growth prospects, even if the booming travel demand continues. With fuel costs rising and airlines still struggling to procure adequate staffing, the future of air travel remains questionable.
London’s Heathrow Airport has just announced plans to limit passengers for the summer season. If other cities in the U.S. or Europe opt for similar policies, it will compromise future revenue for airlines even more.
According to recent data from OAG’s Flightview flight-tracking app, demand for air travel in the U.S. is not slowing down. However, unless airlines are able to stop cancelling flights and get these passengers into the air, the robust forecast demand won’t mean much. The long-term future remains uncertain for AAL and DAL stock, regardless of positive Q2 earnings.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
