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Delta Traffic Up Slightly in June

Zacks Equity Research

The June traffic for the second largest U.S. airline, Delta Air Lines (DAL), inched up 0.4% year over year on growing business travel demand and flight expansion in the New York market. The addition of novel features to its services and the introduction of new products contributed to the rise in traffic.

Airline traffic is customarily measured in billions of revenue passenger miles. On a year-over-year basis, consolidated capacity (or available seat miles) fell 1.7% while the load factor (percentage of seats filled by passengers) improved 180 basis points (bps) to 88.1%.

Domestic traffic grew 0.9% year over year on a 120-bp expansion in load factor, which partly offset capacity reduction of 0.5%. International traffic slid 0.3% year over year due to a 3.3% decline in capacity that partially offset a 260-bp growth in load factor. Pacific and Latin America remained strong contributors, with traffic climbing 7.3% and 6.2%, respectively.

Passenger revenue per available seat mile (:PRASM) rose 8% year over year and fuel price was $3.29 per gallon for June.

Last month, Delta, which competes strongly with United Continental Holdings Inc. (UAL) and Southwest Airlines Co. (LUV), had projected fuel costs of $3.37 per gallon for the second quarter, up from the previous forecast of $3.28 per gallon. On a non-GAAP basis, operating margin is expected in the range of 8–10% and consolidated unit cost, excluding fuel, is projected grow 3–4% year over year.

Moreover, the company foresees a $155 million loss from fuel hedging strategies in the second quarter due to the drop in fuel prices. Delta Air Lines was 70% hedged for the second quarter at a jet fuel price of $3.05–$3.40 per gallon using collars and call spreads. As a result, the company expects to record operating loss in the quarter with negative 1% operating margin after accounting for the hedges and other special charges.

For the second quarter, the Zacks Consensus Estimate for Delta is 67 cents, which is lower by 7 cents and 14 cents over the last 7 and 30 days, respectively. But the Estimate represents substantial growth of 56.78% from the year-ago quarter.

We are currently maintaining our long-term Neutral recommendation on Delta Air Lines.

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