uploads/2018/11/Chart-3-Traffic-Vs-Capacity-1.png

Why Delta Air Lines’ Traffic Keeps Growing

By

Updated

Traffic increased

Delta Air Lines (DAL) has reported traffic growth in terms of revenue passenger miles in every month of 2018 except January. In October, the airline’s traffic grew 2.7%. Year-to-date through October, its growth rate was 3.2%.

Strong traffic growth in the domestic market drove the consolidated traffic last month. In October, the company’s traffic grew 3.2% in the domestic market. Year-to-date as of October, the domestic region saw 4.8% year-over-year traffic growth while the capacity growth came in at 6.8%.

Article continues below advertisement

An improving US economy, which reflects in remarkable growth in GDP over the first three quarters of 2018, along with a strong job market and a steady increase in wages are driving domestic travel demand. To capitalize on the growing demand, the company has been aggressively adding capacity in the domestic market. In October and year-to-date through October, Delta Air Lines increased its capacity by 4.7% and 5.2%, respectively.

International market traffic

As part of its strategy of focusing on its most profitable transatlantic route, Delta Air Lines has been adding capacity to the Atlantic region and reducing capacity in Latin America and the Pacific, causing sluggish growth in overall international traffic.

In October, international traffic grew 1.6%, driven by a 5.7% year-over-year increase in Atlantic traffic, partially offset by 1.9% and 4.3% declines in Latin American and Pacific traffic. Year-to-date, international traffic grew 0.8% due to a 3.8% rise in the Atlantic, which more than offset plunges of 2.5% and 2.2% in Latin America and the Pacific, respectively.

Outlook

Lower airfares have been a key growth driver for Delta Air Lines’ traffic over the past two years. However, rising fuel costs are expected to lead to high input costs for the aircraft carrier, which should make lower airfare difficult. Although the International Air Transport Association expects passenger travel demand to continue to grow in 2018, the growth is supposed to be lower than last year since demand drivers have slowed.

Major air carriers (JETS) Southwest Airlines (LUV) and United Continental (UAL) reported year-over-year growth of 6% and 7.5%, respectively, in October. American Airlines (AAL) and Alaska Air (ALK) haven’t reported their October numbers yet.

Advertisement

More From Market Realist