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Delta's Smooth Flight So Far in 4Q17

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Part 2
Delta's Smooth Flight So Far in 4Q17 PART 2 OF 5

Delta Maintains Its 4Q17 Unit Revenue Guidance

Utilizations rising

Delta Air Lines’ (DAL) capacity utilization, also known as load factor, has improved in every month of 2017 except January and September 2017. In January, DAL’s load factor fell 0.1% YoY (year-over-year), and in September, it fell 0.2% YoY.

These declines came as a result of traffic growth outpacing capacity growth. In November, utilization improved 0.4% to 85.4%. YTD (year-to-date), utilizations have improved 1.2% to 85.7%.

Delta Maintains Its 4Q17 Unit Revenue Guidance

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Unit revenues improve too

Delta’s unit revenues improved 1.9% YoY in 3Q17, making it the second-straight quarter of unit revenue improvement after two and half years of declines. American Airlines (AAL) and JetBlue (JBLU) were the only other airlines to record a unit revenue improvements for the same quarter, and both were lower than DAL.

AAL’s unit revenue improved 1.0% YoY, while JBLU’s improved 0.9% YoY.

Outlook maintained

As the yield environment remains stable, Delta expects its unit revenue growth to continue into next quarter. For 4Q17, it has maintained its unit revenue guidance 2%–4% growth. Delta’s outlook is the highest among major peers.

AAL expects its unit revenues to improve 2.5%–3.5% YoY, while Southwest Airlines (LUV) expects to see 1.5% YoY growth. All the other airlines expect to see their unit revenues decline in 4Q17.

Delta expects fuel costs to rise due to rising crude oil prices. Fuel costs are expected to be in the range of $1.82–$1.87 per gallon, compared with $1.6 per gallon in 4Q16. Cost per available seat mile is expected to rise 4.0%–5.0% YoY. Despite this rise in costs, operating margins are expected to improve slightly to 11%–13%, compared with the 10.8% we saw in 4Q16.

Investors can gain exposure to Delta Air Lines by investing in the PowerShares BuyBack Achievers Portfolio (PKW), which has 1.5% of its holdings in DAL.

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