Delta Air Lines Inc.
), one of the leading airlines in the U.S., foresees a surge in
its profits through 2013. It expects a robust growth in 2013
profit from the estimated $1.6 billion returns for
The company has also projected fourth quarter profits in the
range of $200-$250 million. The anticipated growth in profits has
led the company to revise its capital deployments. Management now
plans to introduce strategies in 2013 regarding shareholders
returns that would be effective from January 2014.
We believe Delta Air Lines remains benefited from its
investments made to improve operating efficiencies and customer
experience. The company is successfully realizing benefits from
the Northwest merger. Further, Delta Air Lines expects solid
growth on the back of improved travel demand and a cost cutting
Delta Air Lines is taking several initiatives to lower costs
and is targeting $1 billion in cost savings over the next few
years. The company is planning to cut consolidated capacity by
1-3% year over year in the fourth quarter, with 1-3% reduction in
domestic flying and a 2-4% drop in international flying. Capacity
at trans-Atlantic is also expected to decline 5% by the end of
the year. Additionally, Delta Air Lines is involved in fuel
hedging strategies, which provide a cushion to the fluctuating
Further, Delta Air Lines is restructuring its domestic fleet.
The company plans to replace the older 50-seat regional
inefficient aircraft with the new 110-seat Boeing 717-200. The
company will introduce 16 Boeing 717 in 2013, 36 in 2014 and the
remaining 36 in 2015.
This will enhance the company's operational efficiency and
improve its profitability by eliminating $100 million from cost
upon completion. In addition, Delta Air Lines is expected to save
$200-$250 million from maintenance efficiencies and $250-300
million from employee productivity (which includes voluntary
early retirement of senior staff).
Apart from working on cost savings, the company is also taking
initiatives to expand its service offerings. It is progressing
well on improving ancillary revenues by adding new features to
its services as well as introducing new products providing an
edge over peers like
United Continental Holdings, Inc.
). Delta Air Lines is investing more than $2 billion through 2013
in improved products, services and airport facilities in the air
and on the ground.
Besides, Delta Air Lines is making solid progress on reducing
its debt, which will improve its balance sheet. The company
expects to lower its net debt position from $11.9 billion to $10
billion by 2013. The company believes that lowering its debt
position would result in interest expense savings of $500
million. We believe these efforts will position the company well
relative to its peers.
Delta Air Lines retains a Zacks #3 Rank, implying a short-term
(1-3 months) Hold rating. For the long term, we have a Neutral
recommendation on the stock.
DELTA AIR LINES (DAL): Free Stock Analysis
UNITED CONT HLD (UAL): Free Stock Analysis
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