Delta Air Lines, Inc. DAL reported disappointing traffic results for December. The company posted a decrease in air traffic for the month. Consolidated traffic, measured in revenue passenger miles (RPMs), came in at 16.73 billion, down 0.4% year over year. The downside was mainly due to 1.1% dip in traffic on the international front.
Consolidated capacity (or available seat miles/ASMs) inched up 0.9% to 19.87 billion on a year-over-year basis. Consolidated load factor or percentage of seats filled by passengers fell 110 basis points to 84.2%. This is because capacity expanded while traffic contracted, leading to vacant seats on planes. Additionally, the Atlanta, GA-based airline recorded an 83.5% on-time performance and 97.3% completion factor (mainline) for the period under review.
At the end of 2017, Delta generated consolidated RPMs of 217.71 billion (up 2.2% year over year) and ASMs of 254.33 billion (up 1% year over year). Load factor for the time frame was 85.6% as compared to 84.6% recorded at the end of 2016.
Bearish Q4 Unit Cost Prediction
The company has increased guidance for fourth-quarter 2017 costs, thanks to the power outage at Atlanta airport among other factors. The power crisis at the said airport led to approximately 1,400 flight cancellations and is estimated to have affected the carrier’s pre-tax income to the tune of $25-50 million.
The company now anticipates fourth-quarter non-fuel unit costs including profit sharing to be up approximately 5.5% (previous view was in the range of 5-5.5%). The reasons for the upsurge have been cited as “continued investment in our people and product combined with accelerated depreciation of aircraft retirements and the Atlanta power outage.”
However, the carrier continues to expect fuel price per gallon between $1.92 and $1.97 including taxes and refinery impact. The carrier’s outlook pertaining to unit revenues for the fourth quarter also remains unaltered at approximately 4%. On another positive note, the airline has been seeing rising revenue trends in the final quarter and passenger unit revenues are expected in the high end of the guided range. Also, operating margin is still estimated at 11%.
Additionally, system capacity is projected to expand 2.3%. Previously, the metric was forecast to grow in the band of 2.5-3% for the concluding quarter of 2017.
The carrier further reiterated that it will take a one-time charge of $150-200 million in the to-be-reported quarter on account of the newly initiated tax law.
The bearish unit costs outlook and discouraging traffic results seem to disappoint investors. Consequently, the stock was down 1.8% to $55.69 at the close of trading session on Jan 3.
Zacks Rank & Key Picks
Delta carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space are Gol Linhas Aereas Inteligentes S.A. GOL, LATAM Airlines Group S.A. LTM and SkyWest, Inc. SKYW. While Gol Linhas and LATAM Airlines sport a Zacks Rank #1 (Strong Buy), SkyWest carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Gol Linhas, LATAM Airlines and SkyWest have soared around 221%, 69% and 45%, respectively, in 2017.
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