Delta (DAL) Proves the Airline Recovery Is Underway

Delta Air Lines Inc. (DAL) beat earnings estimates on Wednesday, Oct. 11, and cheered Wall Street with its strong current quarter guidance and its shares rose — but only by 37 cents or 0.70%.

With Delta the first carrier to report third-quarter results and to issue fourth-quarter guidance, the market’s reaction provided an indication that a recovery in the airline sector is well underway.

Now, investors will wait to see if the pattern will be broken by results from often surprising United Continental Holdings Inc. (UAL) , which reports Oct. 18, or from Spirit Airlines Inc. (SAVE) , which reports Oct. 26.

Sprit wrecked the party with its earnings call in July, when executives said industry fare cutting was widespread. In response, airline shares tumbled. The Standard & Poor’s Airline Index, which hit its all-time high of 434 on July 7, fell 20% to 347 on Aug. 24.

But now the index has largely recovered: It closed Wednesday at 401.

Since the first week of September, airline shares have rallied between 9% (for Spirit) and 21% (for American Airlines Group Inc. (AAL) ).

Delta guided towards fourth-quarter passenger revenue per available seat mile between 2% and 4% and said unit revenue would be positive in all four global regions: domestic, Atlantic, Pacific and Latin America.

In a report issued Wednesday, JPMorgan analyst Jamie Baker wrote, “Delta provided an impressive 4Q PRASM guide, in our view.

“We consider the magnitude of the PRASM guide sufficient to extend the sector’s current rally, at least until the next potentially RASM guide calls Delta’s into question (which has happened in the past.),” Baker wrote.

“With the reporting calendar clear for another five market days, we see little to arrest the sector’s newfound momentum in the immediate term,” he said. “We expect the sector rally to continue.”

In a report issued Thursday, Oct. 12, Buckingham Research analyst Dan McKenzie wrote, “On its earnings call, Delta highlighted strengthening yields throughout…

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