On October 11, Delta Air Lines released its third-quarter results. The company’s adjusted EPS of $1.83 came in ahead of analysts’ expectations by $0.09 and registered a whopping 16.6% YoY (year-over-year) increase, driven by an 8.1% rise in revenues, lower taxes, and a reduced share count. Also, Delta Air Lines’ third-quarter revenues of $11.95 billion came in slightly higher than analysts’ estimate of $11.94 billion.
Delta Air Line’s latest quarterly performance reflected its ability to grow despite increased fuel costs. Oil prices have risen continuously since the beginning of 2018 through mid-October. As fuel prices have cooled off in the past few weeks, analysts expect Delta Air Lines’ profitability to increase more in the coming quarters.
Focusing on the transatlantic route
Since the beginning of 2018, Delta Air Lines has been strategically reducing its capacity in the Latin American and Pacific regions to better invest in more profitable routes of the transatlantic market, which mainly comprises flights between Europe and the United States. The strategy has helped the company improve its total or passenger revenue per available seat mile (TRASM or PRASM).
During the third quarter of 2018, Delta Air Lines’ TRASM improved 4.3% YoY to 16.25 cents from 15.58 cents reported a year ago. The growth rate was higher than its top peers—Southwest Airlines’ (LUV) and American Airlines’ (AAL), which reported TRASM growth of 1.2% and 1.8%, respectively. United Continental’s (UAL) third-quarter TRASM growth of 6.1% was the highest in the US airline industry (JETS).
The company is adding capacity to capitalize on the growing opportunities from an improving global economy, mainly the United States and Europe. In the United States, a healthy job market and a steady increase in wages are driving travel demand.
Delta Air Lines is aiming for capacity growth of 2.3% in 2018. The company has been increasing its capacity to lower its fleet costs and compete aggressively against low-cost carriers.