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Delta’s December Traffic Growth Matched Its Capacity Growth Rate

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Traffic matches capacity

Delta Air Lines (DAL) reported its December operating performance on January 3. In December, the airline’s traffic (revenue passenger miles) increased 5.4% YoY (year-over-year), in line with its capacity growth rate during the same period.

The company reported traffic growth in every month of 2018 except January. In 2018, the company’s traffic growth rate was 3.5%, almost on par with its capacity growth rate of 3.6%.

The robust increase in Delta’s December traffic was mainly driven by strong traffic growth in the domestic market. In December, the company’s traffic increased 7% in the domestic market. In 2018, the local region saw 4.9% YoY traffic growth.

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The improving US economy—as reflected in remarkable GDP growth, a stable job market, and a steady increase in wages during the first three quarters of 2018—drove domestic travel demand in 2018. To capitalize on this growing demand, Delta aggressively added capacity in the local market. In the year, it increased its domestic capacity by 5.2%.

International market traffic

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

In 2018, its international traffic grew 1.1% due to a 3.9% rise in the Atlantic region, which more than offset the falls of 1.7% and 1.8%, respectively, in the Latin American and Pacific regions. However, in December, the company’s international traffic increased 2.6% due to a 3.5% YoY increase in Atlantic traffic and a 3.6% YoY increase in Latin American traffic. The Pacific region’s traffic growth was flat YoY.

Outlook

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

Among the other top airline companies (JETS), Southwest Airlines (LUV), United Continental (UAL), and Hawaiian Holdings (HA) haven’t reported their December numbers yet. In November, Southwest Airlines, United Continental, and Hawaiian Holdings registered YoY traffic increases of 4.9%, 7.1%, and 2.8%, respectively.

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