Strong Demand Propels Delta's May Traffic

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Leading passenger and cargo carrier Delta Air Lines Inc. (DAL) reported growth in traffic for May 2014 on the back of strong demand in both the domestic and transatlantic markets. Passenger revenue per available seat mile (:PRASM) improved 7.0% year over year. Strength in Atlanta, New York and Seattle boosted the carrier’s performance.

The company’s airline traffic – measured in revenue passenger miles or RPMs, which imply revenue generated per mile per passenger – moved up 5.8% year over year to 17.73 billion. Consolidated capacity, (available seat miles/ASMs) for the month, increased 3.6% from May 2013 to 20.49 billion.

The load factor or percentage of seats filled by passengers leaped 170 basis points (bps) from May 2013 to 86.5%. The company registered a completion factor of 99.9%, with nearly 84.4% of flights on schedule.

For the first five months of 2014, Delta has generated RPMs of 78.91 billion (up 4.7% from the corresponding period last year) and ASMs of 93.97 billion (up 2.4% year over year). The load factor improved 190 bps year over year to 84.0%.

In 2014, Delta is expected to generate higher revenues than last year on strong domestic market, capacity discipline, route expansion, cost control measures and customer-focused initiatives.

Atlanta-based Delta is fortifying its position in Seattle by adding several international and domestic routes, and is building the coastal city as a key part of its Pacific network restructuring, which we believe will further drive its traffic growth.

Further, Delta is reaping the benefits of its tie up with Virgin Atlantic as it is picking up in the lucrative New York-London travel route. Owing to its widened network in the U.S. and Europe, Delta-Virgin passengers will now have more flight options from New York and London, which will in turn, strengthen the prospect of the joint venture.

Recently, the airline behemoth has approved a $2 billion share buyback program that is expected to complete within 2016, in addition to raising its 6 cents quarterly dividend by 50% to 9 cents per share effective from the third quarter of 2014.

We thus remain bullish on Delta and assign a Zacks Rank #1 (Strong Buy) to the stock. Similar stocks worth considering within this sector include American Airlines Group Inc. (AAL), Southwest Airlines Co. (LUV) and Alaska Air Group Inc. (ALK).

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