Airlines sell-off on Delta earnings; guidance in focus

Summary: Market sensitivity to Delta's forward guidance a sign of the high bar for this earnings season; further pain point may be forward P/E's

We mentioned yesterday the sensitivity to forward guidance given high expectations for FY24 earnings & we are seeing that today with Delta (-5% pre-market) & broader Airlines sector that is selling off despite coming with guidance at midpoint of FY24 EPS consensus ($6-7 vs. $6.5) - disappointment seems to be management pulling guidance down from previous targets for $7/share. Markets looking past backward looking strong 4Q performance - $1.28 vs. $1.165 in EPS for 4Q, passenger revenue $12.17b vs. c$12.06b, up +12% yoy, small miss on load factors at 84% vs. c84.7% & yields at 21.12c (-2.1% yoy) & positive management comments; “In 2024, demand for air travel remains strong and our customer base is in a healthy financial position with travel a top priority...I’m not giving up on the $7.”

The -5% fall in pre-market only reverses it to levels one week ago (still +30% from Oct lows) - but this view doesn't quiet excuse credit investors who have traced much of equities moves & both have come despite little change in fundamentals in earnings -> forward P/E ratios climbed from 17.5 to 19.75 (bbg analyst consensus) over that time noting our $IG weighted equity index (~98% coverage) has traced S&P's rally over the last 2-months.

Local credit index linked equity movers; easyJet (-3%), Lufthansa (-2%) in €IG & Air France -KLM (-3%) in €HY.