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Delta Strengthens Hold in New York

Zacks Equity Research

Second largest U.S. airline Delta Air Lines Inc. (NYSE:DAL - News) is seeking an expansion into the New York's LaGuardia airport by increasing the number of flights.

The company plans to add more than 100 flights and 29 destinations at New York’s LaGuardia by the middle of the next year to take advantage from the 132 slots pairs (the authority to operate one takeoff and one landing) gained in a slot-swap deal with US Airways Group Inc. (NYSE:LCC - News).

Delta will invest about $100 million for the LaGuardia development. This is the biggest expansion by any carrier in decades, increasing than 60% flights and 75% destinations.

While Delta expects its capacity to fall by 2–2.5% next year, the number of daily flights in and out of New York will increase to 264 covering 60 cities by summer. Currently, Delta operates in more than 35 cities.

Spreading in the key market like New York will fortify Delta’s position against its major rivals United Continental Holdings Inc. (NYSE:UAL - News), which operates a hub at New Jersey’s Newark Liberty International Airport, and American Airlines, a subsidiary of AMR Corp. (NYSE:AMR - News), which has an international gateway at the Kennedy airport in New York.

The additions will make Delta the largest airline, operating between the New York City and the U.S. Delta Air Lines was the largest airline before the merger of United Airlines and Continental Airlines completed in October last year.

As Delta has a strong presence at New York’s JFK International Airport, we believe accelerating footprints at La Guardia would attract more business travelers, thereby leading to higher profits.

The move shows Delta Air Lines’ continued effort to increase domestic and international flights. Within the country, the company is also focusing on adding flights in Latin America, Mexico and Brazil.

Delta Air Lines is progressing well on the $1.2 billion expansion at New York-JFK, which is scheduled to open in 2013, and the new Maynard H. Jackson Jr. International in Atlanta, slated to open in 2012. Internationally, Delta’sdeal with a Chinese international airline China Eastern in early June should prove profitable.

We believe Delta’s global network, hub structure and alliances with other airlines will enable it to offer customers an improved global reach compared with its peers. However, we are concerned about steeply rising fuel prices, unionized labor, the debt loaded balance sheet and competitive threats that are restraining the upside potential of the stock.

We currently have a long-term Neutral recommendation on Delta Air Lines. The stock retains the Zacks #3 Rank (Hold) for the short term (1–3 months).

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