One of the major U.S. airlines,
Delta Air Lines Inc
) has projected a favorable second quarter owing to the
prevailing low fuel prices. The company expects profit
improvement with significant margin expansion along with
stability in revenue growth. We expect the news to drive the
company's market value despite the economic overhang that the
airline industry is currently facing.
Earlier in May, the company also stated that it aims to
restart its quarterly dividend and authorized a share repurchase
program, over a period of three years. The move is an attempt by
Delta to win back investors' confidence, which suffered due to
the slump in the airline industry.
The airline giant has authorized a share repurchase program of
$500 million and will pay a quarterly dividend of 6 cents per
share on Sep 10 to shareholders of record on Aug 9. Delta last
paid a dividend in 2003. Together, the dividend and stock buyback
program will return $1 billion to shareholders of Delta.
), which pays a quarterly dividend of a penny, Delta will be the
second among the big airline companies in the U.S. to pay a
dividend. Apart from these two companies, other major airlines
United Continental Holdings Inc.
JetBlue Airways Corporation.
) pay dividends.
We expect Delta to remain profitable as it continues to reap
benefits from the investments made to improve operating
efficiencies and customer experience. In 2012, the company
experienced higher revenues than the prior year based on better
service offerings, capacity discipline and customer-focused
These trends are expected to continue in the coming months,
resulting in 4% to 6% year-over-year improvement in unit
revenues, with margin expansion of 2.5% to 4.5% for the March
quarter. On the operational front, Delta witnessed an on-time
arrival rate of 86.5%, luggage missing dropped by 25% and
customer complaints were about 40% less.
Further, the company is taking several initiatives to lower
costs and targets $1 billion of cost savings over the next few
years. Delta is leading the industry in managing fuel cost
through fare hikes and capacity cuts.
The company is planning cautiously to cut consolidated
capacity by 2-4% year over year in the first quarter, with 1-3%
reduction in domestic flying and 3-5% drop in international
flying. Delta Air Lines is involved in fuel hedging strategies,
which provide a cushion to the rising fuel prices.
Currently, Delta carries a Zacks Rank #3 (Hold).
DELTA AIR LINES (DAL): Free Stock Analysis
JETBLUE AIRWAYS (JBLU): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis
UNITED CONT HLD (UAL): Free Stock Analysis
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