Given how the pandemic has altered our way of life, and specifically banned travel at times, it shouldn't be a surprise that Delta's (DAL) 2020 performance deteriorated significantly year-over-year. Delta reported a net income loss of $12.38 billion, a decline of 359% YoY. Revenue is down 63% to $17.095bn when compared to the same period last year.
Despite the above there are some positive numbers. First, in March when the travel restrictions blindsided Delta their daily cash burn was $100m, however this number is now down to $18m as Delta has focused on aggressively reducing their costs through capacity reduction in response to the depressed demand for travel. Secondly, the demand for travel is slowly starting to return with the Transport Security Administration reporting March 2021 daily throughput of 1.1m, which is about double what volumes were at its worst in 2020, however 2021 is still down 48% from the daily average before Covid-19. While the demand for travel may never recover to pre-pandemic levels with the migration to Zoom calls, we can still expect material upside from the current levels.
However, the question remains when we will see travel demand recover as much of it rests on not the positive vaccines lab results but more importantly the production and distribution of vaccines to hundreds of millions of people, which the success of remains unclear. Until that happens, Delta's path to profitability remains challenging and their liquidity becomes important.
Delta said it ended the year with $16.7 billion in liquidity, raising billions in debt last year, including a $9 billion debt sale backed by its frequent-flyer program SkyMiles. The airline industry is also receiving additional federal funds to help weather the crisis, with congress approving an additional $15 billion in aid for airlines to pay workers, on top of the $25 billion in government payroll support they received under the March CARES Act. This liquidity should help Delta endure more losses if needed. However, mounting debt and months of negative cash flow have taken a toll on its financial health. As a result, Delta's balance sheet is now in its worst shape in five years with debt to capital at 91,22% and debt to equity at 1,78.
Although Delta Air Lines is posting losses and is facing an increasing debt load, the airline is showing signs of a return to positive free cash flow by 2022. Delta is navigating the pandemic better than its competitors, with a strong footprint, customer loyalty, corporate relationships and margin strength we believe it is well positioned amongst its peers to participate in the industry rebound and remains one of the best airlines to buy over the long term. At the time of writing Delta’s stock has risen impressively off March lows of $18 a share to $49 and is still down 20% from pre-pandemic levels and thus we have the share at a buy with a target of $63.57
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