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A Skeptic's Take on Delta's Forecast of 'Meaningful Profit'

Delta Airlines could face additional challenges in 2022 as the coronavirus and fuel inflation continue to affect travel, argues Stephen “Sarge” Guilfoyle.
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Delta Airlines could face additional headwinds in 2022 as personal and business travel remains under threat from coronavirus and fuel prices rise, argues Stephen “Sarge” Guilfoyle.

“For investors, it comes down to one question,” he wrote in a recent Real Money Pro column. “Do you think you need exposure to the airline space? I have not had any for some time now.”

The airline reported more customers flew during the fourth quarter, including business flyers and consumers from the holidays. Delta reported revenue increased by 74% compared to the same quarter in 2019.

Even though consumers were less hesitant to fly, higher fuel prices made a dent and Delta reported a GAAP net loss of $408 million, but 2021 turned out to be a GAAP profitable year at $280 million, largely thanks to $4.5 billion in federal aid.

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The balance sheet remains a “work in progress” and Delta’s total assets easily outweigh total liabilities because the airline has “done a nice job during a crisis of paying down some debt, while reducing pension benefits significantly,” Guilfoyle wrote.

While Delta has $7.93 billion on the books in cash and $3.38 billion in short-term investments, the company has access to total liquidity of $14.2 billion when its revolving credit facilities that have not been drawn down are included.

Delta is predicting that 2022 will generate a "meaningful profit'' even though its expenses are expected to increase by 15%. The omicron variant plays a large factor in the airline's first-quarter prospects.

Whether domestic travel or international travel bounces back first, forecasting the outcome remains challenging.

“I had held at the time that domestic travel would recover prior to international travel,” Guilfoyle wrote. “Quite honestly, I am not at all sure of that at this time. International travel might just be a tailwind going forward.”

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