Passenger traffic surged
On June 4, Delta Air Lines (DAL) reported its operating statistics for May. The airline’s traffic (or revenue passenger miles) rose 7% YoY, which outpaced the capacity (or available seat mile growth) rate of 5.3%. Delta’s traffic has risen for 16 consecutive months. Delta’s traffic grew by 5.5% YTD, which is slightly higher than the capacity growth of 5.1%.
Delta recorded traffic growth across the domestic and international markets. In May, the US traffic rose 8.3%, while from January to May it grew 6.7%. Healthy employment levels and a steady rise in wages have been driving the travel demand in the domestic market.
The company is enhancing seating capacity to capitalize on growing demand in the US market. Delta increased its capacity by 5.5% in the local market last month. From January to May, the airline expanded its domestic capacity by 5.7%.
In May, Delta’s international traffic increased by 4.9% due to a 4.7% increase in the Atlantic region and 11% growth across the Pacific region. The company recorded a traffic decline of 1% in the Latin America region in May.
YTD, Delta registered a 3.9% increase in its international traffic. The traffic growth across the Pacific and Atlantic regions was 6% and 5.4%, respectively. Nonetheless, traffic in the Latin America region fell 0.3% in the YTD period.
Delta’s low airfare strategy has been driving passenger traffic. We believe its cost-cutting initiatives and moderate oil prices should help the airline continue offering low airfare to its customers. Further, the company’s strategy of adding more business class seats should help the company gain premium customers.
Among big airline companies, JetBlue Airways (JBLU), Hawaiian Holdings (HA), and Alaska Air Group (ALK) haven’t reported their May numbers yet. In April, JetBlue, Hawaiian, and Alaska airlines registered YoY traffic increases of 6.6%, 3.7%, and 0.4%, respectively.
To get exposure in the passenger airline industry, investors can invest in the iShares Transportation Average ETF (IYT). The ETF invests in the Dow Jones transportation stocks and has allocated 19.1% in the passenger airline industry. IYT ETF has gained 10.3% in the year so far.