Airlines Week in Review: Alaska and Delta Report Traffic Results For April

Earlier this week, Alaska Air (NYSE: ALK) and Delta (NYSE: DAL) released their traffic results for the month of April and year-to-date 2015. In the quest to capture the Seattle market, both airlines continued to expand their capacities at a high rate during the month. However, these expansions continued to weigh heavily on their operational efficiency.

Alaska Air Group

In an attempt to defend its leading position in the Seattle market, Alaska Air continued to increase its capacity at a high rate of 13.2% on a year-on-year basis ^[1]. The airline’s mainline business contributed to over 93% of this capacity expansion. In consequence, the Seattle-based airline experienced a sharp rise of 9.8% in its passenger traffic in April. However, the rapid capacity expansions weighed heavily on the carrier’s operational efficiency, reducing its passenger load factor or occupancy rate by 250 basis points to 83.6% during the month ^[1].

Alaska Air expects to increase its flying capacity by 10.5% in the second quarter. For the full year, the airline aims to expand its Seattle capacity at a rate of 10% to fight the capacity expansions by Delta. The airline targets to increase its overall capacity at a high rate of 8% in 2015 ^[2] which will continue to create pricing pressure for the airline.

– Our price estimate for Alaska Air stands at $69 per share, approximately 10% above its current market price.

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

– We forecast the airline to report earnings of $5.78 per share in 2015, compared to its consensus earnings of $6.01 per share.

See our complete analysis of Alaska Air Group here

Delta Air Lines

Despite facing adverse competition from Gulf airlines and smaller carriers, Delta grew its international capacity by 5.3% on a year-on-year basis driven by new routes in Latin American and Atlantic markets ^[3]. The airline’s overall system capacity rose by 4.6% year-to-date, in line with the company’s capacity guidance for the year. Further, the airline’s passenger traffic increased 1.8% compared to the previous year on the back of the rapid capacity expansions. However, the consolidated passenger unit revenue (PRASM) for the month fell 3.5% on a year-on-year basis, as the carrier’s domestic strength was offset by foreign exchange pressure and lower surcharges in the international markets.

For the second quarter, Delta expects its revenues to rise by 2% due to a 3% increase in capacity. The airline estimates its unit revenues to be down by 2-4% due to continued currency fluctuations. However, the company plans to keep its non-fuel unit costs growth under 1% on a year-on-year basis. Delta also expects to realize savings of over $2 billion from the low fuel costs. Given the low fuel prices and continuous cost control measures, the airline aims to achieve operating margin of 16-18% in the second quarter ^[4].

– We have a price estimate of $48 for Delta, almost 9% ahead of its current market price.

– We estimate the airline to post revenue of $41.4 billion in 2015, compared to its consensus revenue of $41.5 billion.

– We forecast the airline to report earnings of $4.41 per share in 2015, compared to its consensus earnings of $4.72 per share.

See our complete analysis of Delta Air Lines here

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1. Alaska Air Report Traffic Results For April, 4th May 2015, www.alaskaair.com [↩] [↩]
2. Alaska Air Announces First Quarter Results, 23rd April 2015, www.alaskaair.com [↩]
3. Delta Announces Traffic Results for April, 4th May 2015, www.delta.com [↩]
4. Delta Announces First Quarter Results, 15th April 2015, www.delta.com [↩]