Delta Air Lines' Q1 Earnings Surpass Expectations, Goldman Sachs Upgrades to Buy

Goldman Sachs has assigned a "buy" rating to Delta Air Lines (DAL.US), following the company's release of better-than-expected first-quarter results. The investment bank maintained a target price of $60 for the airline. Analysts Catherine O'Brien and Jack Ewell highlighted that Delta's performance exceeded expectations due to stronger-than-anticipated revenue and effective control over unit costs excluding fuel.

In response to the demand environment, Delta Air Lines has announced plans to reduce its capacity for the second half of 2025 and maintain a year-over-year capacity balance. This adjustment represents a 2.5 percentage point decrease from Goldman Sachs' current forecast for the second half of 2025 and a roughly 4 percentage point reduction from predictions made two weeks prior. The company has not yet disclosed its capacity guidance for the second quarter of 2025. However, assuming Goldman Sachs' forecast of a 3.5% increase holds, the new outlook for the second half of 2025 would result in overall capacity for the fiscal year being approximately 1 percentage point below the company's initial guidance range of 3% to 4% growth. Despite the reduction in capacity expectations, management anticipates that unit costs excluding fuel will experience a modest increase, aligning with initial projections.

Delta Air Lines' second-quarter revenue for 2025 is projected to change by -2% to +2% year-over-year, with the midpoint falling below market expectations and Goldman Sachs' estimates of +1.6% and +1.1%, respectively. Management noted that strong demand areas include premium products, loyalty programs, and international market revenue, while domestic and economy class revenue showed relatively weaker performance.

Goldman Sachs believes that Delta Air Lines' strategic adjustments and cost control measures will be beneficial in achieving higher returns in the current market environment. However, investors should remain cautious about potential risks, including macroeconomic pressures, order delivery risks, and fluctuations in business travel demand.

Delta Air Lines reported first-quarter revenue of $14.04 billion, a 2.1% increase year-over-year, surpassing market expectations. On a non-GAAP basis, earnings per share were $0.46, exceeding the market consensus of $0.39. While Delta still expects to be profitable in 2025, it has declined to reaffirm its January projection of adjusted earnings per share exceeding $7.35. The company stated that it will update its outlook as the year progresses.