Delta Air Lines Inc. (DAL) faced investors’ apprehensions after it reported lower-than-expected growth in traffic for June 2014. The leading passenger carrier warned that a slowdown in certain international markets could push fares further down. Delta’s stock plummeted 5.14% on Wednesday trade on NYSE.
Corporate and domestic strength pulled passenger revenue per available seat mile (PRASM) up by 4.5% year over year. However, the rise in international capacity was partially marred by lower demand among business travelers owing to the 2014 FIFA World Cup, which affected results to some extent.
The company’s airline traffic – measured in revenue passenger miles or RPMs, which imply revenue generated per mile per passenger – grew moderately by 3.0% year over year to 19.03 billion. Consolidated capacity, (available seat miles/ASMs) for the month, increased 3.1% from June 2013 to 21.75 billion.
The load factor or percentage of seats filled by passengers remained flat year over year at 87.5%. The company registered a completion factor of 99.9%, with nearly 80.8% of flights on schedule.
In the first half of 2014, Delta has generated RPMs of 97.93 billion (up 4.3% from the corresponding period last year) and ASMs of 115.72 billion (up 2.5% year over year). The load factor improved 150 bps year over year to 84.6%.
Gripped by the World Cup fever, Latin America took a toll on Delta’s international yields, which grew a mere 1.9% as corporate travelers temporarily chose to avoid the mad rush in Brazil. Further, the cut in fares by Gulf carrier Emirates on some of the lucrative U.S. routes, affected Delta’s performance.
It seems that the news simultaneously impacted other major airline stocks. United Continental Holdings Inc. (UAL), American Airlines Group Inc. (AAL) and JetBlue Airways Corp. (JBLU) were the biggest losers in the industry yesterday.
However, passenger traffic is expected to benefit from the Fourth of July holiday. According to AAA (formerly American Automobile Association) air passenger is expected to increase to 3.1 million passengers (up 1%) over the Independence Day long weekend.
Over the long term Delta is expected to generate higher revenues than last year on a strong domestic market, capacity discipline, route expansion, cost control measures and customer-focused initiatives.
Further, Delta is reaping the benefits of its tie up with Virgin Atlantic as it is picking up in the lucrative New York-London travel route. Owing to its widened network in the U.S. and Europe, Delta-Virgin passengers will now have more flight options from New York and London, which will in turn, strengthen the prospect of the joint venture.
We thus remain bullish on Delta and assign a Zacks Rank #1 (Strong Buy) to the stock.
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