Atlanta, GA-based Delta Air Lines, Inc. DAL unveiled a bullish forecast with respect to passenger revenue per available seat mile (PRASM, a measure of unit revenue) at its 2015 investor day presentation. The carrier now expects the key metric to decline approximately 2% in the final quarter of the year. This represents an improvement from the earlier forecast that was announced along with the November traffic results. The prior projection had pegged fourth quarter PRASM decline at the high end of the 2.5% to 4.5% range.
For the fourth quarter of 2015, the carrier now expects operating margin in the range of 16.5% to 17.5% (previous forecast in the band of 16% to 18%). Fuel price is expected in the range of $1.82 to $1.87 per gallon for the final quarter. Low fuel cost is expected to aid the quarter’s results to the tune of $750 million. System capacity is still expected to be flat on a year-over-year basis. The improved PRASM outlook is certainly a positive since the metric is a measure of sales relative to capacity for a carrier.
The carrier, which has restructured its fuel hedge portfolio in the wake of the soft fuel price environment, expects to generate significant savings in 2015. Earnings per share in 2015 are projected to grow in excess of 35% over 2014 levels.
Delta expects to continue its good run in 2016 as well with fuel savings of approximately $3 billion. Fuel price per gallon is projected at $1.45 in 2016, representing a 36% decline over the 2015 estimated figure of $2.23. The carrier anticipates a $500 million hedge loss in 2016.
The substantial savings have undoubtedly bolstered the financial health of carriers including Delta. This has prompted the company to launch share buyback programs, make increased dividend payments and significantly reduce their debt levels. Delta intends to continue with its shareholder friendly moves in 2016.
The company still expects capacity in 2016 to be flat to up 2%. While the carrier aims to expand in the U.S., U.K., Mexico and other promising markets, capacity contraction is expected in weaker markets like Brazil, the Middle East and Japan, next year.
Another positive aspect highlighted by Delta at its investor presentation was with regard to branded fare revenues. The carrier expects to generate $2.4 billion in 2018 through branded fare revenues, which reflects a significant improvement over the 2015 estimated figure of $1.2 billion.
Zacks Rank
Delta currently carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider Hawaiian Holdings HA, SkyWest Inc. SKYW and Deutsche Lufthansa Aktiengesellschaft DLAKY. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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