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Delta sees strong domestic passenger revenue growth in 4Q14

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Domestic market outperforms

Delta Air Lines’s fourth-quarter and full-year 2014 revenue increased year-over-year by 6% and 7%, respectively. Throughout the year and in the fourth quarter, the passenger revenue segment and other ancillary revenue performed well. However, the cargo segment only started showing positive growth in the second half of the year.

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Passenger revenue up

Passenger revenue comprises 87% of Delta’s revenue and increased by 5% during 4Q14, while the smaller cargo revenue segment increased by 2%. Delta’s Other Revenue segment, accounting for ~10% of the airline’s revenue, increased by 21% during the quarter and performed exceptionally well in the full year. This segment’s revenue received support from Delta’s frequent flyer program SkyMiles, joint ventures, and sale of fuel byproducts to third parties by Delta’s refinery.

Delta’s passenger segment, which accounts for most of Delta’s total revenue, increased by 5% year-over-year in 4Q14 and by 6% in the full year 2014. Strong passenger revenue growth in the domestic market drove these increases. During the quarter, there was a 10.7% growth in domestic passenger revenue. Due to higher yield, unit revenue measured as passenger revenue per available seat miles (or PRASM) increased by ~5% on a 5% growth in capacity.

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Domestic revenue

In 2013, Delta Air Lines’s (DAL) revenue from the domestic market was 65%, and American Airlines’s (AAL) and United Continental Holdings’s (UAL) domestic revenue shares were 57%. Delta’s low-cost peers, Southwest Airlines (LUV) and JetBlue Airways (JBLU), had a domestic share of more than 90%.

Investors can invest in companies like Delta that have a positive growth trend through the iShares Transportation Average ETF (IYT), which holds ~38% in airline stocks and ~3% in Delta Air Lines, as well as the SPDR S&P Transportation ETF (XTN).

International performance

Due to weak performance in international markets, the overall increase in Delta’s passenger unit revenue growth was only 0.8% in 4Q14. Passenger load factor remained relatively flat at 82.8% compared to 4Q13, but for the full year it was 84.7%, the highest recorded since 2009.

We’ll explore Delta’s international markets further in the next article.

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