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Will Delta’s Strong Operational Performance Continue in 2016?

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Traffic growth

Delta Air Lines (DAL) saw average traffic of about 59.0 million passenger miles for the quarter, a 0.2% year-over-year decline, despite a growth in capacity. This was driven by weak revenues in all of Delta’s markets except Latin America. As of September 2016, traffic had grown by 1.9% YTD (year-to-date) to 163.2 billion miles.

An airline’s traffic is measured in RPM (revenue passenger miles). RPM is the number of revenue passengers multiplied by the total distance traveled.

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Capacity

During the third quarter, Delta’s capacity increased by 1.5% to 69 million miles, while traffic declined in the same period. In September 2016, capacity increased by 2.4% YTD, again higher than the 1.9% traffic growth seen in the same period. As a result, the load factor fell 0.5 percent points to 84.4%.

Outlook

For 4Q16, Delta expects a ~1% capacity increase over the fourth quarter of 2015. DAL had already planned to reduce its 4Q16 capacity by 6% in the UK region due to the economic uncertainty brought on by Brexit and the steep decline in the British pound.

The IATA (International Air Transport Association) suspects the industry might be at the end of the traffic boost phase provided by low oil prices. This suggests travel demand may slow down, which will adversely impact airlines. For a complete analysis of the industry, read Will Airline Industry Demand Rise for the Remainder of 2016?

The Dynamic Leisure & Entertainment ETF (PEJ) invests ~5.8% of its portfolio in United Continental (UAL), ~5.6% in Delta Air Lines (DAL), ~5.6% in Southwest Airlines (LUV), ~5.3% in American Airlines (AAL), and ~3.1% in JetBlue Airways (JBLU).

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