It is a fact that woes related to passenger revenue per available seat mile (PRASM: a measure of unit revenue) present one of the biggest challenges for stocks in the airline space. That Delta Air Lines DAL is no exception was made clear when the carrier stated that the key metric declined 5% in May. The decline can be attributed to adverse foreign exchange movements and soft domestic yields.
The Atlanta, GA-based airline behemoth had stated that it expects PRASM in the band of 2.5% to 4.5% for the second quarter. However, Delta expects to return to positive unit revenue growth by year-end.
Another important metric, load factor (% of seats filled by passengers) declined as traffic growth was outpaced by capacity expansion. Revenue passenger miles (RPMs) – a measure of air traffic – improved 3.3% to 18.8 billion while capacity (available seat miles/ASMs) expanded 3.5%. Load factor declined 10 basis points to 85.3% in the month. The company registered a completion factor of 99.9%, with 88.6% of its flights on schedule.
At the end of the first five months of 2016, Delta generated RPMs of 83.87 billion (up 3.1% year over year) and ASMs of 101 billion (up 2.8% year over year). Load factor stood at 83% versus 82.8% recorded last May.
Interested in Avianca?
According to a report in the Wall Street Journal, Delta and Chicago-based United Continental Holdings UAL were among the companies interested in buying Latin American carrier Avianca Holdings S.A. AVH. According to the report, advisers to the Bogotá, Colombia-based Avianca have given a document seeking capital injection to the tune of $500 million to the potential bidders.
The report further stated that Avianca may be entirely or partially up for sale. The rumors caused shares of Avianca to gain value in after-market trading on Jun 2.
Zacks Rank
Delta currently carries a Zacks Rank #3 (Hold). Investors interested in the airline space may consider SkyWest, Inc. SKYW which sports a Zacks Rank #1 (Strong Buy).
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