On Jun 20, Zacks Investment Research downgraded Delta Air Lines (DAL Quick QuoteDAL - Free Report) to a Zacks Rank #4 (Sell). Going by the Zacks model, companies holding a Zacks Rank #4 are likely to underperform the broader market.

Why the Downgrade?

Shares of Delta, like its peers including American Airlines Group (AAL Quick QuoteAAL - Free Report) and United Continental Holdings (UAL Quick QuoteUAL - Free Report) , have been suffering greatly due to the mass shooting at a nightclub in Orlando and the explosion at the Shanghai Pudong airport on Jun 12.

Such acts of terrorism impact airline stocks as there is a possibility of waning travel demand due to security fears. The timing of the attacks could not have been worse as the three-month period between June and August has been predicted to be the busiest one for U.S. carriers in terms of air travel.

Moreover, the explosion at Shanghai's Pudong International Airport highlights the necessity to tighten security at airports.

Outlook

Moreover, Delta issued a below-par guidance while reporting its May traffic figures. The carrier now expects passenger revenue per available seat mile (PRASM: a measure of unit revenue) to decline around 4.5% in the second quarter of 2016. The earlier projection had called for a decline in the band of 2.5% to 4.5%. Delta expects operating margin near the lower end (i.e. near 21%) of its previous view in the band of 21% to 23% for the second quarter.

Earnings Estimates

In view of this gloomy scenario, earnings per share estimates are moving south. Over the last 7 days, earnings estimates for the second quarter and full-year 2016 have been trimmed by 2 cents and 10 cents to $1.80 and $6.31, respectively. Moreover, the EPS estimate for 2017 has been reduced by 19 cents to $6.57 over the same time frame.

A Key Pick

Investors interested in the airline space may consider SkyWest, Inc. (SKYW Quick QuoteSKYW - Free Report) , which sports a Zacks Rank #1 (Strong Buy).

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