Why Did Delta Revise Its Capacity Guidance?
Delta Air Lines (NYSE:DAL) has lowered its system capacity growth to less than 2% for the second half of 2016 in order to improve its unit revenue and manage the rising fuel costs. With the capacity cuts, Delta aims to become the first network carrier to have a positive unit revenue, or PRASM, a popular metric closely tracked by the industry experts, in 2H’16. The airline had previously hinted at adjusting capacity to improve its unit revenue trajectory. Yet, the news came as a surprise to many investors, which caused Delta’s stock to jump by over 3% in a single trading day. The market reacted positively to the news and expects the other network carriers — American Airlines and United Continental Holdings — to follow suit. The stock price of both the competitors was up almost 2%.
Below we present the revised guidance by the airline and the key reasons behind the revision.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Delta Air Lines Limited
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