Delta Air Lines’ (DAL) 2Q17 EBITDA margin is expected to improve slightly to 22.8% as compared to 21.8% in 2Q16. For the third quarter, margins are expected to fall to 22.9% as compared to 23.5% in 3Q16. EBITDA margins for 4Q17 are then expected to improve to 18.9% as compared to 16.5% in 4Q16.
For the full year 2017, margins are expected to fall from 21.9% in 2016 to 20.6% in 2017. Increasing labor costs are a primary reason for this decline. However, declining crude will provide some respite.
Delta expects fuel cost per gallon to be in the range of $1.68 to $1.73, a 12.2%–14.7% decline as compared to the 2Q16 fuel price of $1.97 per gallon. Investors should also keep in mind that margins could improve if crude oil prices fall further, thereby reducing Delta Air Lines’ fuel cost.
Cost to rise
Costs are expected to increase in the second quarter. According to Delta, the cost per available seat mile excluding fuel (or CASM-Ex) and including profit sharing is expected to rise 6%–8% in the second quarter. Normalized CASM-Ex including profit is expected to rise 4%–6%.
As a result, Delta Air Lines expects operating margins for 2Q17 to fall 17%–19% from the 23.2% operating margin it achieved in 2Q16.
You can gain exposure to Delta Air Lines by investing in the PowerShares Dynamic Leisure & Entertainment ETF (PEJ), which invests 5.4% of its holdings in the airline. It also invests ~5.3% of its portfolio in American Airlines (AAL), ~4.6% in United Continental Holdings (UAL), and 2.8% in JetBlue Airways (JBLU).