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Delta Air Lines To Soar Higher

Bluesea Research profile picture
Bluesea Research


  • Delta Air Lines delivered 2.5% PRASM growth in June along with substantial decline in fuel costs year over year.
  • It is expected to deliver 2.5% PRASM growth for Q2 which would be the first quarter of unit revenue growth since 2014.
  • It should be able to deliver adjusted operating margin of 18% to 19%, which would be the highest among legacy carriers.
  • Delta Air Lines has seen lowest gains among legacy carriers in the last one year; stronger results in this quarter should make it a more attractive choice for investors.

Delta Air Lines (NYSE:NYSE:DAL) has been one of the laggards in the airline industry in the past one year. While other airlines showed unit revenue growth, DAL has shown decline in this important metric. But better Q2 numbers and future prospects can make this the next big winner within the airline industry.

A turnaround in passenger revenue per available seat mile (PRASM) started in April when it showed 1% growth. In May, DAL’s PRASM increased by 3.5% and in June it reported a 2.5% gain. At the same time, it expects the fuel costs to decline to $1.68-1.73/gallon in Q2 compared to $1.97/gallon a year ago.

delta air lines

Increase in unit revenue and a decline in fuel costs should allow margin expansion. It is expected to deliver adjusted operating margin of 18% to 19% in this quarter. It should be able to deliver good PRASM growth in July and August as it will see easier comparison from last year. In the last one year DAL has seen lowest stock growth among legacy carriers. It grew by 45% compared to 71% by American Airlines (NASDAQ:AAL) and 85% by United Continental (NYSE:UAL).

Good Performance

DAL is set to deliver unit revenue growth after showing a decline for over 2 years. While other airlines were able to move to a growth path, DAL continued to deliver unit revenue decline until the first quarter of 2017. In April, it finally showed PRASM growth of 1% which increased to 3.5% in May and 2.5% in June. For the second quarter it is expecting 2.5% PRASM growth.

A decline in fuel costs is also going to provide a boost to earnings. Last year DAL had to incur some major losses as it closed its fuel hedging positions. DAL's management is expecting fuel costs to be in $1.68-1.73/gallon range, down considerably from $1.97/gallon it

This article was written by

Bluesea Research profile picture
I have worked in the technology sector for over 4 years. This included working with industry stalwarts like IBM. I have done my MBA in finance and have been covering various blue chip stocks for the past 6 years. Having hands-on knowledge in the technology sector has helped me gain valuable insights into the ups and downs of this sector and predict winners and losers more accurately.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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