Delta Air Lines Inc. (DAL) was the highest collector of baggage fees for the second year in a row. According to the Bureau of Transportation, Delta collected about $952.3 million in baggage fees in 2010, almost double the $481.7 million collected in 2009 and five times the $177.1 million in 2008.
American Airlines, a wholly owned subsidiary of AMR Corporation (AMR), was the second highest collector with more than $580.7 million in baggage fees compared with $475.2 million in 2009. US Airways Group (LCC) was not far behind with $513.6 million collected in 2010, up from $432.3 million in 2009.
United Continental Holdings Inc. (UAL), formed by the merger of Continental Airlines and United Airlines last year in October, collected $665 million in baggage fees last year.
Delta was also on the top in the terms of reservation cancellation. The second largest U.S. airline earned $698.6 million from cancelled reservations in 2010 versus $406 million in 2009 and $18.9 million in 2008.
We believe Delta Air Lines is expected to be profitable going forward on fare hikes, capacity reduction as well as hedging strategies despite soaring fuel prices. This shows the strength it achieved from industry consolidation and the merger with Northwest Airlines.
Delta Air Lines is also making continued improvements in ancillary revenues by offering expanded products and services both on board and on the ground. These initiatives are expected to yield revenue of $1 billion by 2013.
Further, the company expects ancillary revenues, such as expanded seat-related offerings and from the launch of the international premium economy product “Economy Comfort” in late June, to generate $150–$200 million in additional revenue this year.
However, we are mainly concerned about the high fuel price that will affect the overall profitability of the company in 2011. Further, unionized labor, debt loaded balance sheet, competitive threats from its large peers, and continued investment in technology keep us cautious on the stock.
We are currently maintaining our long-term Neutral rating on Delta Air Lines. The company also retains the Zacks #3 Rank for the short term.
AMR CORP (AMR): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
US AIRWAYS GRP (LCC): Free Stock Analysis Report
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