Leading U.S. passenger carrier Delta Air Lines ( DAL - Analyst Report ) displayed traffic and revenue growth for December 2012, driven by robust demand during the holiday period, merchandising revenue improvement and better capacity optimization.

The company’s airline traffic – measured in revenue passenger miles or RPMs, which implies revenue generated per mile per passenger – increased 0.5% year over year to 14.8 billion. However, consolidated capacity (or available seat miles/ASMs) for the month dropped 1.7% from December, last year to 17.8 billion.

The load factor or percentage of seats filled by passengers went up 180 basis points from the last month of 2011 to 82.7%. Passenger revenue per available seat mile (PRASM) also improved 4% year over year. The company registered completion factor of 99.7%, with nearly 85.4% of the flights on schedule.

For full-year 2012, Delta Air Lines generated RPMs of 193.0 billion (up 0.1% year over year) and ASMs of 230.4 billion (down 1.8% year over year), while load factor was 83.7%, up 160 basis points.

Atlanta, Georgia based Delta Air Lines also announced three flights every day between Los Angeles and Seattle, from April 8, 2013. Through this initiative, the company not only aims to provide a swift trans-Pacific flying option for its customers but also solidify its presence on Seattle ground that serves as a door to the Asian market.

Delta Air Lines currently retains a Zacks #3 Rank, implying a short-term Hold rating for a period of one to three months. We also maintain a long-term Neutral recommendation on the stock.

We expect Delta Air Lines to be profitable on fare hikes, capacity reduction, new and improved ancillary revenues, expansion into new and untapped markets as well as hedging strategies. In addition, the company is trying to minimize expenses through various strategic steps like curtailing non-fuel costs and removing old and depleted flights.

However, we remain concerned about fuel price volatility, unionized labor, new advertising policy and competitive threats from rivals such as United Continental Holdings ( UAL - Analyst Report ) . These will likely restrain the upside potential of the stock.