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Delta Air Lines' Traffic and Capacity Increase in September


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Delta Air Lines Inc. (DAL - Analyst Report) recently released the operating figures for September. The carrier reported a 3% decline in passenger revenue per available seat mile (PRASM: a measure of unit revenue). This is an improvement from the PRASM decline of 7% and 9.5% in July and August respectively, due to moderation in close-in domestic yield pressures due to application of lower fall capacity levels. However, supply-demand imbalance in Transatlantic sector as well as Yen hedge gains in the year-ago period continued to hurt PRASM.

September Performance

Revenue passenger miles (RPMs) – a measure of air traffic – improved 1.4% to 17.60 billion, while capacity (available seat miles/ASMs) expanded 1.8% to 20.80 billion. In addition to PRASM, another important metric, load factor (percent of seats filled by passengers) declined by 40 basis points to 84.6% as traffic growth was outpaced by capacity expansion. The company registered a completion factor of 99.9%.

At the end of the first nine months of 2016, Delta generated RPMs of 163.10 billion (up 1.9% year over year) and ASMs of 193.14 billion (up 2.4% year over year). Load factor stood at 84.4% versus 84.9% recorded last September.

Guidance Reiterated

Delta Air Lines reiteratedits guidance for the September quarter,. The company expects the September quarter operating margin to be impacted by 1.5 points or $150 million mainly due to the power outage issue in August that disrupted several flight services. Operating margin is estimated in the range of 18–19%. PRASM too is expected to be adversely impacted by 1 point and decline around 7% for the September quarter. Per Delta Air Lines, system capacity in this period is expected to be up 1.5%. Cost per ASM, including profit sharing, is expected to remain flat year over year. The company was able to overcome a CASM-ex headwind of around 0.5 points from the technology outage issue. As a result, non-unit fuel costs remained in line with the initial guidance. The company expects to record almost $250 million in other expenses for the quarter. Delta had earlier also outlined that it expects its U.S. capacity to expand by only 2.5% in the final quarter of 2016.

Besides Delta Airlines, another U.S. airline, Southwest Airlines Co. (LUV - Analyst Report) had previously lowered its quarterly unit revenue guidance for the July end quarter due to a technology outage issue.

Zacks Rank and Stocks to Consider

Delta currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the airline sector include JetBlue Airways Corp. (JBLU - Analyst Report) and SkyWest Inc. (SKYW - Snapshot Report) . Both companies hold a Zacks Ranks #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

JetBlue Airways saw the Zacks Consensus Estimate increase by 2 cents over the last 30 days.

SkyWest witnessed a 1 cent rise in the Zacks Consensus Estimate over the last 60 days.

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