Delta Air Lines Inc.
(
DAL
), the second largest U.S. airline, reported a 2% year-over-year
traffic increase in March due to a surge in travel demand from
business travelers. Airline traffic is customarily measured in
billions of revenue passenger miles.
On a year-over-year basis, consolidated capacity (or available
seat miles) fell 3.4% while the load factor (percentage of seats
filled by passengers) improved 400 basis points (bps) to 84.1%.
Domestic traffic inched up 0.3% year over year on a 300-bp
expansion in load factor, which partly offset capacity reduction of
3.2%. International traffic rose 4.7% year over year driven by a
650-bp growth in load factor that partially offset a 3.8% decline
in capacity. Pacific and Latin America remains the strong driver
with traffic climbing 12.6% and 5.1%, respectively.
Passenger revenue per available seat mile (PRASM) rose 13% year
over year in March, which is within management's previous guidance
of 11-15%. Fuel prices were $3.37 in March.
Last month, Delta had projected that fuel costs will grow $250
million in the first quarter. Operating margin is expected in the
range of 1-3%, down from the previous expectation of 2-4%.
The Zacks Consensus estimates loss of 7 cents for the first
quarter, representing a massive growth of 82.11% from the year-ago
quarter.
Notwithstanding higher fuel prices and the threat of recession
looming large over Europe, 2012 will likely mark the third
consecutive year of profitability for the company. Delta continues
to make efforts to reduce its operating expenses including fuel and
non-fuel costs, through fare hikes, capacity cuts and fleet
rightsizing as well as de-leveraging of its balance sheet. The
company is also progressing well on several revenue initiatives
such as upgrading seats, installing WiFi and expanding Economy
Comfort to other aircraft. Additionally, Delta is expanding its
footprint in both domestic and international markets.
Despite these positive attributes, we remain on the sidelines
due to new pricing rules, competitive threats from
United Continental Holdings
Inc.
(
UAL
),
Southwest Airlines Co.
(
LUV
) and
JetBlue Airways Corp.
(
JBLU
), its unionized workforce and heavy investments, which might weigh
on the bottom line.
Consequently, we are maintaining our long-term Neutral
recommendation on the stock. For the short term (1-3 months), Delta
Air Lines retains a Zacks #4 (Sell) Rank.
DELTA AIR LINES (
DAL
): Free Stock Analysis Report
JETBLUE AIRWAYS (
JBLU
): Free Stock Analysis Report
SOUTHWEST AIR (
LUV
): Free Stock Analysis Report
UNITED CONT HLD (
UAL
): Free Stock Analysis Report
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