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Can Delta Air Lines’ Revenue Grow for the Rest of 2016?

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Jul. 19 2016, Updated 12:07 p.m. ET

2Q16 results

For 2Q16, Delta Air Lines’ revenue (DAL) stood at $10.5 billion, a fall of 1.9% as compared to revenue of $10.7 billion in 2Q15. The fall in revenue was driven by lower cargo revenues and passenger revenues. Except for Delta mainline, passenger revenues declined in all regions: regional (-3.4%), Atlantic (-2.6%), Pacific (-8.3%), and Latin America (-4%).

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Why did revenue decline?

Lower yields in all regions continued to adversely impact unit revenue. Unit revenue is a measure of PRASM (passenger revenue per available seat mile). International markets were affected by foreign currency fluctuations and lower fuel surcharges due to lower crude oil prices. Domestic markets were impacted by lower airfares. Latin America saw the biggest drop in unit revenues led mainly by the weakening Brazilian economy.

Outlook

DAL expects the revenue environment to remain challenging as a result of global economic uncertainty. Domestic yields are also expected to remain subdued.

For the third quarter of 2016, Delta expects to see a 4%–6% decline in its passenger unit revenues. Capacity is expected to grow by 1%–2%.

However, ED Bastian, CEO of Delta, is determined to get the business back on the path of positive unit revenues by the end of the year.

The Guggenheim S&P 500 Equal Weight Industrials ETF (RGI) invests 1.4% of its holdings in DAL. It also invests 1.5% of its holdings in American Airlines (AAL), 1.4% of its holdings in Southwest Airlines (LUV), and 1.4% of its holdings in Alaska Air Group (ALK).

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