February Traffic For Delta - Analyst Blog

By Zacks Equity Research,

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Delta Air Lines Inc. ( DAL ) reported a 1.4% year-over-year increase in traffic in February. Airline traffic is measured in billions of revenue passenger miles, which means one mile flown by one passenger.

Capacity (or, available seat miles) grew 6.1% year over year and load factor (percentage of seats filled with passengers) fell 340 basis points (bps) year over year to 73.7%.

Domestic traffic dropped 0.2% year over year, while capacity increased 1.9% and load factor deteriorated 170 bps to 77.1%. International traffic grew 1.9% year over year driven by a 1.8% capacity increase while load factor upped 10 bps to 87.5%.

After a drop in the traffic results in the first month of the year, Delta showed gradual pick up in February traffic with modest improvements in passenger count. Although load factor registered a steep decline, we believe it was mostly due an increase in capacity rather than any actual change in load over the past months. We also believe that the carrier would need stronger passenger numbers to match its capacity expansion plan resulting in better utilization.

Delta has already projected growth on the back of improved travel demand, which is expected to grow 6-8% this year, and its cost-cutting strategy should help boost earnings. The company expects to register the third consecutive year of profitability riding on the benefits from its merger with Northwest Airlines back in 2008. Management is hopeful that the deal will continue to support financial results in 2012 by generating approximately $2 billion in annual revenue and cost synergies.

However, lower profit projection by the International Air Transport Association (IATA), stiff competition from other players, such as AMR Corporation ( AMR ), Southwest Airlines Co. ( LUV ) and United Continental Holdings Inc. ( UAL ), fuel price volatilities and a gloomy economic outlook, particularly in the Euro zone, could affect transcontinental business and limit earnings growth in the near term.   

We are currently maintaining our long-term Neutral recommendation on Delta Air Lines. For the short term (1-3 months), the company retains a Zacks #3 Rank (Hold).

DELTA AIR LINES ( DAL ): Free Stock Analysis Report
SOUTHWEST AIR ( LUV ): Free Stock Analysis Report
UNITED CONT HLD ( UAL ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: DAL , LUV , UAL

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