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Delta’s Traffic Growth Beat the Capacity Growth Rate

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Dec. 6 2018, Updated 11:10 a.m. ET

Traffic beat the capacity

Delta Air Lines (DAL) reported its November operating performance on December 4. In November, the airline’s traffic (revenue passenger miles) grew 4.2% YoY (year-over-year)—higher than its capacity growth of 3.8% during the same period. Delta has reported traffic growth in every month of 2018 except January. Year-to-date through November, the company’s traffic growth rate was 3.3%—almost on par with the capacity growth rate of 3.4%.

Strong traffic growth in the domestic market drove the consolidated traffic last month. In November, the company’s traffic grew 4.5% in the domestic market. Year-to-date as of November, the local region saw 4.7% YoY traffic growth.

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An improving US economy, which reflects the remarkable GDP growth during the first three quarters of 2018, along with a stable job market and a steady increase in wages are driving domestic travel demand. To capitalize on the growing demand, Delta has been aggressively adding capacity in the local market. In October and year-to-date through October, Delta Air Lines increased its capacity 3.8% and 5.1%, respectively.

International market traffic

For the past few quarters, Delta is trying to focus on its most profitable transatlantic route. Therefore, the company has been adding capacity to the Atlantic region and reducing the capacity in the Pacific and Latin America regions, which caused sluggish growth in the international traffic.

In October, the international traffic grew 3.6% due to a 6.5% YoY increase in Atlantic traffic. Latin America and the Pacific region saw the traffic increase 2.1% and 0.2% YoY, respectively. The international traffic grew 1% year-to-date due to a 3.9% rise in the Atlantic, which more than offset falls of 2.2% and 2% in Latin America and the Pacific, respectively.

Outlook

Lower airfares have been a key growth driver for Delta Air Lines’ traffic during the past two years. Falling fuel costs are expected to lead to lower input costs for Delta, which should help the company continue offering low airfare to its customers.

Among the other top airline companies (JETS), Southwest Airlines (LUV) and United Continental (UAL) haven’t reported there November numbers yet. In October, Southwest Airlines and United Continental registered YoY traffic growth of 6% and 7.5%, respectively—much higher than Delta’s increase of 2.7%. American Airlines (AAL) and Alaska Air Group (ALK) didn’t provide monthly traffic data.

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