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Airline behemoth Delta Air Lines (DAL - Analyst Report) reported first-quarter 2013 adjusted earnings of 10 cents, surpassing the Zacks Consensus Estimate of 7 cents. The results also improved considerably from the year-ago adjusted loss of 5 cents.

Strategic expansion measures along with operational efficiency and better products and services aided the company to deliver an impressive performance.

Revenues nudged up 1% year over year to $8.50 billion in the reported quarter but fell short of the Zacks Consensus Estimate of $8.51 billion. On an annualized basis, Passenger revenues also grew 1%, while Other revenues dropped 1% from the prior-year quarter. Cargo revenues also dipped 2%.

Operating Statistics

Airlines traffic, measured in billions of revenue passenger miles, dropped 1% year over year to 43.1 billion. Capacity or available seat miles fell 3% to 53.0 billion, while load factor (percentage of seats filled with passengers) grew 150 basis points year over year to 81.2%. Passenger revenue per available seat mile (PRASM) or unit revenue rose 4% year over year, led by a 2% increase in yield.

Operating Expenses

Total operating expenses, including special items, increased 3% year over year to $8.28 million, primarily due to higher landing fees, rents and salaries. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel cost, profit sharing and special items, crept up 5%.

Average fuel price for Delta was $3.24 per gallon and total fuel expenses dropped $78 million year-over-year due to reducing fuel costs and less usage.

Liquidity

At the end of the first quarter, the company had $3.64 billion in cash and short-term investments and $1.8 billion in undrawn revolving credit facilities, netting $5.44 billion in unrestricted liquidity. Total debt and capital leases were $12.31 billion.

Delta generated operating cash flow of $1.1 billion in the first quarter while capital expenditures were $650 million. Free cash flow stood at $457 million.

Guidance

For the second quarter of 2013, Delta Air Lines expects operating margin of 9–11% and consolidated unit cost, excluding fuel and profit sharing, to grow 4.5–5.5% year over year. Additionally, the company expects domestic flying to increase 1–2% year over year and international flying capacity to remain flat to 1% down year over year.

The estimated fuel price, including taxes and hedges, is approximately in between $2.95 and $3.00 per gallon.

Other Airline Stocks

Of the other stocks in the sector, Southwest Airlines Co. (LUV - Analyst Report) and JetBlue Airways Corp. (JBLU - Analyst Report) will release their first quarter financial results on Apr 25.

Our Take

Delta – the second largest airline company in U.S. after United Continental Holdings Inc. (UAL - Analyst Report) – currently holds a Zacks Rank #3, implying a Hold rating. We believe that the company is progressing well on improving ancillary revenues by including new services under its hood as well as introducing products, which are enhancing its value and profitability.
 

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