The second largest U.S. airline
Delta Air Lines
) expects second quarter unit revenue (or revenue per available
seat miles) to grow 8% year over year thanks to the growing
business travel demand and flight expansion in the New York market.
The addition of novel features to its services as well as
introduction of new products is also expected to boost revenue.
Due to the drop in fuel prices, the company foresees $155
million loss from fuel hedging strategies in the second quarter.
Delta Air Lines was 70% hedged for the second quarter at a jet fuel
price of $3.05-$3.40 per gallon using collars and call spreads. As
a result, the company expects to record operating loss in the
quarter with negative 1% margin after accounting for the hedges and
other special charges.
However, on a non-GAAP basis, the company still expects
operating margin in the range of 8-10% and consolidated unit cost,
excluding fuel, to grow 3-4% year over year. Additionally, the
company expects both domestic and international flying to decline
1-2% year over year.
Now, the company estimates fuel price of $3.37 per gallon for
the ongoing quarter, up from the previous forecast of $3.28 per
gallon attributable to hedge losses that were settled in May and
For the second quarter, the Zacks Consensus Estimate for Delta
remains unchanged at 80 cents over the last 7 days but fell by a
penny in the last 30 days. The estimate represents a massive growth
of 84.88% from the year-ago quarter.
Further, Delta Air Lines, which competes strongly with
United Continental Holdings Inc.
Southwest Airlines Co.
), continues to have a healthy balance sheet. The company expects
to exit the quarter with $5.3 billion in unrestricted liquidity
including $3.5 billion in cash and short-term investments, and $1.8
billion in undrawn revolving credit facilities.
We are currently maintaining our long-term Neutral
recommendation on Delta Air Lines. For the short term, the stock
retains a Zacks #3 (Hold) Rank.
DELTA AIR LINES (DAL): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis
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