Delta Shares Profit with Employees

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Delta Air Lines Inc. (DAL) has announced $372 million in profit sharing with 80,000 employees as part of its effort towards recognizing employee contribution for realizing operational goals in 2012. The contribution will amount to a payout of 6.67% of each individual’s earnings in 2012.

For the past three years, Delta employees have earned about 1.1 billion in profit sharing and shared reward programs. In 2012, Delta employees earned $463 million in performance pay that reflects the company’s healthy financial position.   

We expect Delta, the second largest airline company in the U.S. after United Continental Holdings Inc. (UAL) to remain profitable as it continues to reap benefits from the investments made to improve operating efficiencies and customer experience. In 2012, the company experienced higher revenues compared to last year based on better service offering, capacity discipline and customer-focused initiatives.

These trends are expected to continue in the coming months, resulting in 4% to 6% year-over-year improvement in unit revenues, with margin expansion of 2.5% to 4.5% for the March quarter. On the operational front, Delta witnessed an on-time arrival rate of 86.5%. Luggage missing dropped by 25% and customer complaints were about 40% less.

The company is taking several initiatives to lower costs and is targeting $1 billion of cost savings over the next few years. Delta is leading the industry in managing fuel cost through fare hikes and capacity cuts.

The company is planning cautiously to cut consolidated capacity by 2–4% year over year in the first quarter, with 1–3% reduction in domestic flying and 3–5% drop in international flying. Delta Air Lines is involved in fuel hedging strategies, which provide a cushion to the rising fuel prices.

With the target to reap in high revenues and earnings in 2013, Delta is involved with various strategic actions that include re-organization of fleet, introduction of attractive services, capturing of new markets and profitable takeovers. The company is collaborating with top brands like Malin+Goetz and Tumi Holdings Inc. (TUMI) to offer travel luxuries to BusinessElite passengers.

We believe that these innovative and attractive initiatives along with enhanced service offerings will position the company advantageously compared to other industry players such as JetBlue Airways Corp. (JBLU).

Delta currently holds a Zacks Rank #3 (Hold) rating.

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