Strong Passenger Flow Will Boost Delta Airlines’ Profits For The Year

by Trefis Team
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DAL
Delta Air Lines
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Delta Airlines (NYSE: DAL) is a major US airline company that serves both domestic and international routes and operates 5,400 flights to 325 destinations in 54 countries. Delta reported better-than-expected results for the second quarter late last week thanks to higher passenger flow for the quarter. With Delta witnessing fewer delays for the quarter, the airline also reported a notable improvement in operational efficiency. Per Trefis, Delta’s shares have a fair value of $62, which is in line with the current market price. Our interactive dashboard about Delta Airlines’ Earnings highlights changes to key metrics for the company and summarizes our outlook for the year.

Summarizing Delta’s Q2 2019 Results

  • Revenue rose to $12.5 billion and came in 20% higher than the figure for Q2 2018. Revenues largely rose on the back of three key factors:
    • Firstly, ticket prices rose across the industry as cancellations stemming from the 737-MAX grounding took hold. Delta, which does not fly any 737-MAX, was able to take advantage of the grounding by increasing its capacity and flight frequency.
    • Secondly, fewer flights meant higher passenger-flow for Delta. The result was a much higher revenue print than analysts had expected. It should be noted that we expect this trend to continue for a couple of quarters, or at least until the 737-MAX issue is resolved, or alternatively, regional competitors can find alternative aircraft’s to service routes that the 737-MAX had previously services.
    • Lastly, Delta’s mainline division enjoyed a higher unit revenue as it saw more passengers choosing its premium segment. The airline has been working to improve this segment, as it looks to improve revenues and margins. The strategy clearly seems to be working, and we expect that the premium segment will continue to play a key part in Delta’s overall strategy to increase profitability in the long run.
  • Both net income and earnings per share rose during the quarter.

Key metrics

  • RASM (Revenue per Average Seat Mile), increased by 3.8% for the quarter as ticket prices increased
  • Load Factor improved to record levels.
  • Delta also witnessed a reduction of 1.4% in unit costs thanks to improved operational efficiency and lower fuel costs.
  • Delta’s fuel costs were $2.08 per gallon for the quarter – slightly lower than the figure a year ago.

What’s our outlook for the rest of the year?

  • We expect revenues for full-year 2019 to be $47.8 billion. Tailwinds for Delta include higher ticket prices (stemming from flight cancellations); higher unit revenues, as more people opt for the premium segment; and higher capacity.
  • Furthermore, Delta has plans to add capacity both to its mainline routes and its regional service.
  • This combined with our expectation of increased unit revenue as a result of higher premium passenger footfall, should help drive earnings per share. Our full-year outlook for earnings per share comes in at $6.30 a share.
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