We are maintaining our Neutral recommendation on
Delta Air Lines
) - one of the biggest airline companies in U.S. The company is a
part of the Skyteam alliance, which includes Air France,
Aeroflot, Aeromexico, Alitalia,
China Southern Airlines Co. Ltd.
), and KLM.
We believe that Delta Air Lines is progressing well on improving
ancillary revenues by adding new features to its services as well
as launching new products to improve passenger satisfaction and
experience. The company aims to invest more than $2 billion
through 2013 on improved products, services and airport
facilities in the air and on the ground.
Delta Air Lines - which has a strong foothold in Latin America -
entered into a number of deals with
China Eastern Airlines Corp. Ltd.
) and China Southern and the deals are paying off. We believe
that the company's global network and its hub structure, and
alliances with other airlines enable it to offer customers an
improved global reach compared with other domestic and
Of late, Delta has introduced a number of initiatives to expand
its service offerings. The company, along with Alaska Airlines,
has agreed to increase international service and customer
enhancements in Seattle, West Coast. This move will take the
airline services closer to serving the key markets in Asia as
well as benefiting the flyers in the Pacific Northwest circuit.
Delta also targets to enhance its services at Charles de Gaulle
Airport in Paris in mid 2013 by bringing in more flights from 11
destinations in the United States
Additionally, the company is taking several initiatives to reduce
costs and is targeting $1 billion of cost savings over the next
few years. Delta Air Lines, apart from slashing its non-fuel
costs, is involved in fuel hedging strategies, which provide a
cushion to the rising fuel prices.
However, Delta Air Lines failed to perform as per our expectation
in the third quarter 2012 with both earnings and revenue missing
the Zacks Consensus Estimate.
Delta Air Lines operates in a capital and labor intensive
industry where most of the employees, including pilots, flight
attendants and other personnel are unionized. Thus, union
disputes, employee strikes or slowdowns, and other labor-related
disruptions, as well as the integration of the Northwest
workforces may delay the expected merger synergies and increase
labor costs or additional labor disputes, hurting the
profitability of the company.
Additionally, fuel price volatility, federal rules and
regulations, timely investments in new and advanced technologies
and competitive threats act as major roadblocks for the company.
Hence, we see limited upside potential of the stock and expect it
to trade in line with other industry players.
CHINA EASTN-ADR (CEA): Free Stock Analysis
DELTA AIR LINES (DAL): Free Stock Analysis
CHINA SOUTH-ADR (ZNH): Free Stock Analysis
To read this article on Zacks.com click here.