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A Deeper Look at Delta Air Lines’ PRASM in Various Markets

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PRASM declines in 2Q15

An airline’s PRASM (passenger revenue per available seat miles) measures passenger unit revenue and is calculated by dividing passenger revenue by available seat miles. It is a measure of efficiency for the company and is considered one of the key indication factors.

Delta Air Lines’ (DAL) PRASM declined by about 4.6% year-over-year (or YoY) for 2Q15. This decline was due to a 3.9% YoY fall in its yield. The company’s domestic PRASM fell by 1.1% year-over-year on a 6% YoY capacity growth. The highest fall in PRASM of 11.5% YoY was seen in the Atlantic region, which also saw a 5.1% YoY growth in its capacity. The fall comes despite the company hedging fuel costs aggressively during the quarter.

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Comparative PRASM for 2Q15

Delta Air Lines’ PRASM fell less than its major competitors American Airlines (AAL) and United Continental (UAL). AAL expects its PRASM to fall by 6%–8% and UAL expects its PRASM to decline by 5.25%–5.75% in 2Q15. In fact, JetBlue Airways (JBLU) was the only airline that did not report a decline in its PRASM.

These airlines are a part of the iShares Transportation Average ETF (IYT), which has ~38% exposure to airline stocks.

PRASM expected to fall further in 3Q15

Delta Air Lines doesn’t see this revenue decline subsiding in the coming quarter. It has much lower exposure to fuel hedges in the second half of the year and expects to pay $1.90–$1.95 per gallon for the coming quarter.

The company also announced that it expects its PRASM to fall by 4.5%–6.5% year-over-year in the coming quarter, given the same pressures it faces as in the first half of the year.

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