Delta Air Lines ( DAL) reported earnings per share of $1.30, four cents ahead of expectations on revenue of $10.74 billion, which was essentially in line with expectations on Tuesday morning. Revenue was technically just shy of estimates, but $0.02 billion is basically a rounding error. Management guided lower next quarter in terms of earnings anticipating $0.70 to $0.90 per share versus current Wall Street estimates of $0.95.
Shares were up slightly, by less than 1%, to $47.94 as of 2:15 p.m. ET.
The company pointed to the government shutdown along with the timing of Easter and currency headwinds as a reason for the tepid guidance. In terms of holidays, I shun those excuses. We all have calendars. It's not like, "Surprise, we're moving Easter to June 7 this year." I will grant the currency headwind allowance. Even if a company brings in currency "experts," that is a very volatile environment. Even the best predictors of currency movement can be way off base from time to time.
The government shutdown is the wildcard here. Judging by stock action, this appears to have a greater impact on United ( UAL) and American ( AAL) than regional carriers like JetBlue ( JBLU) and Southwest ( LUV) . Actually, Spirit Airlines' ( SAVE) chart is the most attractive. JetBlue will be if bulls can push the shares above the 50-day simple moving average (SMA) around $17.50. It's been good for a short-term trading pop. The same goes for Southwest above $50.50.
I don't hear much chatter about oil though. Rising oil has been the Achilles heel for airline profitability. From my perspective, we can throw away the technicals of the airlines and even the government shutdown story to focus on oil. I imagine airlines may get a small pop when all government employees return to work, but what happens if WTIC goes over $52.50 per barrel?
Crude has been pushing higher with stocks since Christmas evening. The question one needs to answer is whether oil is the tail or the dog. Correlation is falling dramatically while stocks are still pushing higher, so I'll side with crude acting as a tail right now. What that means is if crude does break out higher don't expect it to carry equities alongside, airline names least of all. The good news is the $52.50 has been staunch resistance. Crude is pulling back and breaking a tight support trend line. It's possible this is a small bullish flag (consolidation retracement), so traders need to keep a close eye on the action over the remainder of the trading week. If crude pops over $52.50, there is no way I want to be long Delta or any airline. In fact, I might consider a short-side trade. Below that level, I'm intrigued by SAVE, JBLU, and LUV, but see no reason to trade any of the big 3: AAL, UAL, and DAL.
