Airlines Week In Review: Delta And Alaska

In the past week, Delta (NYSE:DAL) and Alaska (NYSE:ALK) released their traffic reports for the month of August. Both airlines witnessed a steady rise in their passenger traffic in August driven by their higher flying capacities. So far in 2014, most U.S. airlines including Delta and Alaska have expanded their flying capacities to take advantage of the growing demand for air travel. In turn, the higher passenger traffic driven by this capacity expansion has enabled U.S. airlines to post strong growth in their results in the first half of 2014.

Delta Air Lines

Delta, the third largest network carrier in the U.S. after American (NASDAQ:AAL) and United (NYSE:UAL), expanded its flying capacity by nearly 3% annually in August. This higher flying capacity raised Delta’s passenger traffic also by 3% annually. ^[1] We figure this steady increase in the carrier’s passenger traffic in August will help grow its results in the third quarter. Importantly, the increase in Delta’s flying capacity did not weigh on its occupancy rate, indicating that the carrier added flying capacity at an appropriate rate – appropriate because the increase in capacity was fully absorbed by the growing demand. Occupancy rate refers to the percentage of seats in a flight that is occupied by revenue paying passengers. Healthy occupancy rates are crucial for airlines as they directly impact airlines’ profitability.

We currently have a stock price estimate of $39 for Delta, approximately in line with its current market price.

See our complete analysis of Delta here

Alaska Air Group

Compared with Delta, Alaska expanded its flying capacity in August at a much higher rate of nearly 8% on a year-over-year basis. ^[2] We figure Alaska’s smaller size makes it easier for the carrier to add flying capacity at higher rates. Additionally, given the stable demand environment, Alaska’s passenger traffic also rose, enabled by its capacity expansion. We figure the steady growth in Alaska’s passenger traffic, alongside its healthy occupancy rates, will help grow its results in the third quarter.

We currently have a stock price estimate of $48 for Alaska, marginally above its current market price.

See our complete analysis of Alaska here

Other major U.S. airlines including American, United, Southwest (NYSE:LUV) and JetBlue (NASDAQ:JBLU) will likely report their passenger traffic data for August this week. If those reports also show capacity increases, then we could conclude that demand for air travel in most markets is continuing to grow.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

1. Delta’s August traffic report, September 3 2014, www.delta.com [↩]
2. Alaska’s August traffic report, September 3 2014, www.alaskaworld.com [↩]