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Why is Delta Down 5% Despite Impressive November Traffic?

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Delta Air Lines, Inc. (DAL - Free Report) has delivered encouraging traffic figures for November. Consolidated traffic, measured in revenue passenger miles (RPMs), came in at 16.83 billion, up 4.2% year over year.

Consolidated capacity (or available seat miles/ASMs) climbed 3.8% to 19.62 billion on a year-over-year basis. Moreover, consolidated load factor or percentage of seats filled by passengers expanded 40 basis points (bps) to 85.8% as traffic growth exceeded capacity expansion.

Additionally, the carrier recorded an on-time performance (mainline) of 83.2% and a completion factor (mainline) of 99.9%. Approximately, 15.5 million passengers boarded Delta in the month.

On a year-to-date basis, the airline generated consolidated RPMs of 207.62 billion (up 3.3% year over year) and ASMs of 242.43 billion (up 3.4% year over year). However, load factor in the period came in at 85.6% compared with 85.7% at the end of the same time frame a year ago.

 

Q4 View Tweaked

The company anticipates fourth-quarter 2018 earnings per share at the upper end of the guided range of $1.10-$1.30. The Zacks Consensus Estimate for the same stands at $1.23. Revenues (excluding third-party refinery sales) are now estimated to augment approximately 7.5% in the ongoing quarter. However, this projection is slightly lower than the previous view of an 8% increase. Meanwhile, unit revenues are expected to rise 3.5% year over year in the current quarter. Previous outlook showed a 3-5% improvement.

Given Delta’s robust performance this Thanksgiving and the recent drop in oil prices, this forecast is certainly a cautious one, especially considering the fact that fellow players like Alaska Air Group (ALK - Free Report) and Spirit Airlines (SAVE - Free Report) have provided an upbeat guidance on the back of these tailwinds.

While Alaska Air Group now envisions fourth-quarter unit revenues between 12.60 cents and 12.80 cents (earlier view: 12.40-12.60 cents), reflecting an increase of 3-5%, Spirit predicts the same to rise approximately 11% (past view had called for an approximate 6% increase). This skepticism perhaps struck the investors, causing shares of the company to decline more than 5% at yesterday’s close despite delivering impressive traffic results.

Meanwhile, the company hopes to generate higher pre-tax margins during the fourth quarter owing to waning oil prices and its measures to curb non-fuel costs.

Zacks Rank & Key Pick

Delta carries a Zacks Rank #3 (Hold). A better-ranked stock in the airline space is International Consolidated Airlines Group (ICAGY - Free Report) , which flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The International Consolidated Airlines stock also boasts a commendable earnings history, having outperformed the Zacks Consensus Estimate in three of the last four reported quarters, the average beat being 92.9%.

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