Delta Air Lines (DAL 18.48%) kicked off earnings season with a whimper, but the airline’s relatively benign outlook was far better than some investors had anticipated.
The results provided a lift to the entire sector, with carriers including Southwest Airlines (LUV 13.13%) up as much as 5.3% at the open. The stocks gave back some of those gains as the morning continued, but Southwest was still up 2% as of 11 a.m. ET.
Not as bad as feared
Delta and other airlines reset expectations last month, lowering guidance for the recently completed first quarter and providing a more cautious outlook for what is to come. The airline beat those lowered expectations, but warned of some downside potential to Wall Street’s second-quarter consensus estimate.
The airline also withdrew full-year guidance due to ongoing uncertainty. CEO Ed Bastian told investors he remains confident that the current economic disruption will not be elongated, but added that Delta is prepared if the recession scenario does play out.
Why did those comments move other airlines like Southwest? Delta is regarded as one of the best-run companies in the sector and has a history of tempering expectations. With expectations already low, investors were encouraged to hear that Bastian is not ready to panic about the quarters to come.
Is now the time to buy airline stocks?
Even in the best-case scenario, this is a tough time to run an airline. These are cyclical businesses, and in the event of a slowdown, consumers usually find it a lot easier to forgo travel than to stop buying groceries.
Southwest is in the middle of a restructuring that includes ending consumer-friendly policies like a lack of bag fees, and it could feel the brunt harder than most if demand slows.
Delta’s comments were encouraging, but it is too soon to consider buying into stocks like Southwest on the hope of a recovery.
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