U.S. Airlines are getting back to profitability for the first time since the Covid pandemic

Delta Air Lines, the first carrier to report second-quarter results, said it turned a profit, excluding special items, earning $1.02 per share in the quarter as domestic leisure travel rebounded to prepandemic levels. The results handily beat consensus estimates, which called for Delta to lose $1.33 a share.

American Airlines Group (AAL) also issued a positive update on Wednesday, including forecasts for a “slight” second-quarter pretax profit. American said it expects revenue in the quarter to be 2.5 percentage points higher than its prior forecast and predicted lower operating costs. The airline also said it was profitable in June for the first time since December 2019, excluding special items.

American’s stock outperformed Delta on the news. It ended the day ahead 3%, at $20.62, while Delta settled down 1.9% at $40.68.

Citigroup ‘s Stephen Trent, who had a Sell rating on the stock, upgraded American to Neutral. While the airline isn’t “out of the woods,” he wrote, its quarterly update represents a “tactical opportunity” in the stock.

Delta’s stock may not be reacting as much because its results weren’t surprising. The airline predicted months ago that the second quarter would be a turning point for profitability, anticipating a robust summer travel season. Moreover, Delta is positioned as a premium full-service carrier aimed at international markets where bookings remain depressed, especially in its core Atlantic and Pacific routes.

Nonetheless, Delta’s results implied that travel momentum continues to build. The company reported $7.1 billion in total revenue, compared with $4.1 billion in the March quarter. Consensus estimates had called for $6.2 billion in revenue.

Passenger revenue per seat mile jumped, and the airline’s load factor, or the percentage of seats sold, surged to 69% from 45% in the March quarter—a sign that Delta is getting back to nearly full flights.

Delta’s outlook was encouraging. It said its booking curve had normalized, indicating that travelers are booking flights further in advance. Daily cash net sales in June were 70% of 2019 levels—indicating that Delta is overcoming the drag from tickets refunded due to cancellations in the pandemic.

Also encouraging: Corporate ticket sales rose to 40% of prepandemic volume in June from 20% in March.

“Domestic leisure travel is fully recovered to 2019 levels and there are encouraging signs of improvement in business and international travel,” Delta CEO Ed Bastian said in a release.

If there were trouble spots in the report, it was Atlantic and Pacific travel, which are largely moribund. Delta reported just $288 million in Atlantic travel and $88 million in its Pacific segment, both down more than 85% from 2019 levels. Latin America showed a bit more strength, at $485 million, down 36%.

For the September quarter, Delta predicted capacity to be down 28% to 30% compared with the September 2019 quarter, with revenue down 30% to 35%. Those would be sequential improvements from the June 2021 quarter, when capacity was off 39% and passenger revenue was down 53%, compared with 2019 levels.

Analysts generally praised the report. Delta’s “results look very encouraging,” wrote Citi’s Trent, who reiterated a Buy rating on the stock.

Delta’s guidance for the third quarter was slightly better than consensus forecasts, noted Raymond James’ Savanthi Syth.

Cowen’s Helane Becker called out some positives. “Yield trends likely remain positive, given corporate demand is recovering faster than anticipated,” she wrote, referring to revenue yields, a measure of airlines’ operating profitability.

Bernstein’s David Vernon reiterated an Outperform rating and $64 target on Delta. “Guidance for back half revenue and profitability is constructive,” he wrote, “as underlying demand trends remain intact, business travel is on the mend, and cost performance, if choppy, is pointing in the right direction.”

Despite the positives, airlines are facing new headwinds: The spread of the delta variant is renewing lockdowns and travel restrictions in Europe and other regions. And a surge in jet fuel prices is pushing up operating costs and squeezing margins.

Delta’s stock is up just 1.2% this year, sharply trailing the broader NYSE Arca Airline Index, which is ahead 16%. But the sector has been ailing lately—down 7.9% in the last three months versus a 5.9% gain for the S&P 500. www.barrons.com