Positive news from RBC !!!!!!Connecting The Dots: AC flash read-through - DAL Q3 results
Sentiment: Positive
Our take:
DAL (not covered) this morning reported Q3 results that were below consensus expectations. Guidance for Q4 came in below expectations on revenues and EPS as the company grappled with an oversupplied domestic market and operational issues. While DAL stock is flat today, we view the read-through for Air Canada as incrementally positive (within the context of recent weakness in AC shares). We see the following as relevant for AC from DAL's earnings release and conference call.
• Transatlantic travel (positive). While transatlantic unit revenues were down -2% this quarter, DAL management highlighted that domestic and transatlantic unit revenues inflected positive in September as Paris demand rebounded following the Olympics and US point of sale showed ongoing strength. Mgmt also expects strong demand across Transatlantic in early 2025 during off-season. While we believe the Canadian consumer is in a weaker relative position versus the US consumer, we view strong Transatlantic demand as incrementally positive for AC given the yield pressures noted last quarter and see the demand inflection as a positive read-through for sixth freedom growth.
• Corporate travel trends (positive). DAL noted positive trends in business travel with managed corporate travel volumes growing double digits in coastal hubs, robust broad-based demand across sectors, and revenue up +7% y/y. Moreover, DAL highlighted that 85% of surveyed corporates indicated they expect travel volumes to increase in 2025. While we acknowledge differences between the Canadian and US market, we nevertheless see solid corporate travel indicators as incrementally positive for AC.
• Cargo (positive). DAL reported cargo revenues up +27% y/y on international volume strength, an uptick from past quarters. With air cargo rates inflecting recently, we see upside to consensus Cargo estimates at AC, with consensus in Q3 calling for Cargo revenue up +3% (RBCe: +2%). Cargo revenue at AC was 4% of total revenue in 2023, but we see upside in Q3 as strong pricing implies a very high incremental margin.