Airlines Week in Review: Delta and Alaska Report Operating Results For March

Last week, Delta (NYSE: DAL) and Alaska Air (NYSE: ALK) released their operating results for the month of March and year-to-date 2015. In an attempt to capture the Seattle market, the two airlines continued to add capacity during the month which resulted in a decline in the passenger load factor for both the airlines.

Delta Air Lines

Delta recorded a capacity increase of 2.9% on a year-on-year basis or 5% year-to-date, in line with the company’s guidance for the year. The airline’s passenger traffic rose 2.5% compared to the previous year, due to these capacity expansions. However, the consolidated passenger unit revenue (PRASM) for the month was flat year-on-year, due to pressure in the international markets offset by the carrier’s domestic strength. Overall, the unit revenue declined 1.5% due to the currency fluctuations during the quarter.

The carrier’s adjusted average fuel price for the quarter is estimated to be $2.90-2.95 per gallon. Delta’s unit costs are expected to be down 1% compared to the previous year due to the benefit from foreign currency and the continued benefits from its domestic re-fleeting and cost reduction initiatives in the first quarter. The strong cash flows during the quarter enabled the airline to return $500 million to its shareholders in the form of share repurchases and dividends. Delta’s operating margin, excluding settlements is estimated to be 11.5%, while the adjusted operating margin is likely to be in the range of 8-9% for the first quarter. ^[1]

– We currently have a price estimate of $46 for Delta, 8% above its current market price.

– We estimate the airline to post revenue of $42.2 billion in 2015, compared to its consensus revenue of $41.8 billion. We also forecast the airline to report earnings of $5.00 per share in 2015, compared to its consensus earnings of $4.82 per share.

See our complete analysis for Delta Air Lines here

Alaska Air Group

Alaska Air reported a capacity increase of 12.4% on a year-on-year basis, the majority of it coming from the airline’s mainline business. The carrier has been significantly expanding its flying capacity for more than a year to defend its leading position in its Seattle market which is being threatened by Delta’s aggressive capacity additions. As a result of this rapid expansion, the airline recorded an 11.2% increase in its passenger traffic compared to March of last year, an overall increase of over 9% year-to-date. However, the carrier’s passenger load factor declined 100 basis points to 86.1% due to these capacity expansions, implying that the carrier was flying more empty seats on its flights during the month compared to a year ago. ^[2]

While the carrier will announce its first quarter results on the 23^rd of this month, we figure that Alaska Air’s capacity additions will continue to put pressure on the carrier’s yields and load factors, in turn impacting its margins.

– We currently have a price estimate of $69 for Alaska, about 9% ahead of its current market price.

– We estimate Alaska to post revenue of $5.7 billion in 2015, compared to its consensus revenue of $5.6 billion.

See our complete analysis for Alaska Air Group here

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1. Delta’s Operating Results for March, 2 April, www.delta.com [↩]
2. Alaska’s Operating Results for March, 2 April, www.alaskaair.com [↩]