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Can Delta Air Lines’ Strong Operational Performance Continue in 2016?

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Traffic growth

Delta Air Lines (DAL) saw an average traffic of about 47.7 million miles for the quarter—a 3.2% YoY (year-over-year) growth, with stronger demand in regional Latin America and domestic mainline traffic. Notably, Delta’s 1Q16 traffic was 1% above analyst’s estimate of 47.3 million miles.

Can Delta Air Lines Strong Operational Performance Continue in 2016?

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Capacity

DAL’s capacity during the first quarter increased by 2.7% to 58.1 million miles—slower than its traffic growth in the same period, but slightly higher than analyst estimates of capacity growth to 58 million miles.

Can Delta Air Lines Strong Operational Performance Continue in 2016?

Slower capacity expansion as compared to traffic growth has helped Delta improve its capacity utilization, or load factor, by more than 0.4 points during the quarter to 82.1%, as compared to 81.7% in 1Q15.

Outlook

Passenger demand is expected to grow on the back of global economic growth. Delta is already seeing higher forward bookings as compared to last year. Although capacity growth in the first quarter was higher than expected, the company expects this to moderate throughout the rest of the year.

Specifically, DAL expects to see a capacity growth of 2%–3% in 2Q16 and 2% for 2016. The company will continue to adjust capacity in challenging regions and to reallocate capacity in regions with higher yields. Its focus on positive unit revenues remains high, with an inflection point expected later in the year.

DAL makes up 5% of the PowerShares Dynamic Leisure and Entertainment Portfolio ETF (PEJ). PEJ has similar holdings in Southwest Airlines (LUV), United Continental Holdings (UAL), and American Airlines (AAL).

Continue to the next part for a look at Delta’s 1Q16 revenues.

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