Shares of Delta Air LinesDAL slipped to a 52-week low of $45.08 during the trading session on Jan 3, before retracing a bit to close at $45.61. This mirrors an 8.9% decline from Jan 2's closing price. Notably, it was the worst single day decline (in percentage terms) suffered by the stock since Jun 4, 2012.
Why the Debacle?
The bearish fourth-quarter 2018 unit revenue view issued by of this Atlanta, GA-based carrier led to the sharp decline in stock price. Delta now expects adjusted total revenue per available seat mile (TRASM: a key measure of unit revenue) to increase approximately 3% on a year-over-year basis. This compares unfavorably to the previous guidance, which had called for an approximately 3.5% rise in this key metric.
Per Delta, slower-than-expected improvement in close-in yield (prices of tickets sold close to departure) in late December compelled the company to trim its guidance for this key metric. In fact, this was the second time that Delta had trimmed its fourth-quarter unit revenue forecast in a short span of time. In December, the carrier said that it expects unit revenues to rise 3.5% compared with the 3-5% improvement predicted in October.
Furthermore, this Zacks Rank #3 (Hold) stock's weak guidance sent shivers across the entire U.S. airline industry, with share prices of other key sector participants like American Airlines AAL , United Continental Holdings UAL and Alaska Air Group ALK declining significantly on Jan 3. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Also, the airline selloff resulted in the NYSE ARCA Airline Index declining approximately 3.9% on Jan 3. This is because investors fear that airline profitability in 2019 might be hampered in the current low-fuel cost scenario as airlines may reduce fares to attract customers. Moving ahead, this might trigger a price war among carriers apart from hurting capacity discipline.
Other Aspects of the Q4 Guidance
Coming back to Delta, the carrier reduced its fourth-quarter 2018 projection for fuel costs per gallon from the $2.47-$2.52 range to $2.38-$2.43 due to the declining trend in oil prices . Non-fuel unit costs are expected to be down approximately 0.5%. Capacity is anticipated to expand approximately 4%.
Delta expects earnings per share between 1.25 and $1.30. Total revenues are anticipated to grow approximately 7%, excluding third-party refinery sales. Additionally, the pre-tax margin is predicted between 10% and 11%. The Zacks Consensus Estimate for earnings per share and revenue growth is pegged at $1.27 and 6.1%, respectively.
Delta Air Lines, Inc. Price
December Traffic Report
Delta trimmed its Q4 unit revenue forecast while releasing its December traffic data. Consolidated traffic, measured in revenue passenger miles (RPMs), came in at 17.63 billion, up 5.4% year over year. Consolidated capacity (or available seat miles/ASMs) increased 5.4% to 20.94 billion on a year-over-year basis. Meanwhile, consolidated load factor or percentage of seats filled by passengers remained flat at 84.2% as traffic growth matched capacity expansion.
Additionally, the carrier recorded an on-time performance (mainline) of 89.1% and a completion factor (mainline) of 99.9%. Approximately, 15.3 million passengers boarded Delta in the month, up 6.2%.
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