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Delta (DAL) Up on Robust June Traffic & Upbeat Q2 Guidance

Zacks Equity Research

Delta Air Lines, Inc. DAL reported encouraging traffic figures for June. Simultaneously, the carrier provided an upbeat outlook for the second quarter of 2019 (results will be available on Jul 11). Following the impressive updates, shares of the company closed yesterday’s trading session 1.3% higher.

Consolidated traffic, measured in revenue passenger miles (RPMs), came in at 22.77 billion, up 6.2% year over year. Consolidated capacity (or available seat miles/ASMs) climbed 4% to 25.19 billion on a year-over-year basis. Consolidated load factor or percentage of seats filled by passengers improved 190 basis points (bps) to 90.4% owing to traffic growth outpacing capacity expansion.

Additionally, the carrier recorded an on-time performance (mainline) of 79.9% and a completion factor (mainline) of 99.8%. Approximately, 18.9 million passengers boarded Delta in the month.

In the first six months of 2019, the company generated consolidated RPMs of 114.79 billion (up 5.6% year over year) and ASMs of 134.18 billion (up 4.9% year over year). Load factor in the period was 85.6% compared with 84.9% at the end of the period a year ago.

Delta Air Lines, Inc. Price


Delta Air Lines, Inc. Price

Delta Air Lines, Inc. price | Delta Air Lines, Inc. Quote

Bullish Q2 View

Delta anticipates earnings per share in the band of $2.25-$2.35 (previous view: $2.05-$2.35), indicating a surge of more than 25% year over year. Total revenues are expected to increase 8-8.5% (adjusted) year over year. Previously, the same was projected to grow 6-8%. Moreover, pre-tax margin is forecast between 15% and 16% (earlier view: 14-16%). This represents a 100-basis points improvement year over year.

Total unit revenues are predicted to ascend approximately 3.5% year over year compared with 1.5-3.5% expected in the past. Capacity is estimated to augment 4.7% in the second quarter, higher than a rise of 4-4.5% estimated previously. Meanwhile, adjusted fuel costs are expected to be $2.07-$2.12 per gallon (former outlook: $2.10-$2.20). Also, effective tax rate is anticipated to be 23-24% in the quarter.

Delta continues to expect non-fuel unit costs to inch up 1-2% in the soon-to-be-reported quarter. The company is well placed to limit the rise in non-fuel unit costs to 1% only in 2019.

The carrier expects to generate free cash flow of more than $1.5 billion in the second quarter. During the quarter, it returned approximately $500 million to shareholders through dividends and share repurchases.

Zacks Rank & Key Picks

Delta carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Air China Ltd. AIRYY, Azul S.A. AZUL and Copa Holdings, S.A. CPA. While Air China sports a Zacks Rank #1 (Strong Buy), Azul and Copa Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Shares of Air China, Azul and Copa Holdings have rallied more than 23%, 18% and 20%, respectively, so far this year.

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