Passenger traffic soared
On Tuesday, Delta Air Lines (DAL) reported its operating statistics for June. During the month, the company carried a record 18.9 million passengers across its global network. On June 21, it recorded its highest ever single-day traffic of 697,745 passengers.
Delta’s traffic (or revenue passenger miles) rose 6.2% YoY (year-over-year), which outpaced its capacity (or available seat mile growth) rate of 4%. The airline’s traffic has risen for 17 consecutive months. Delta’s traffic has increased 5.6% YTD (year-to-date), higher than its capacity growth of 4.9%.
Delta’s overall traffic growth has mainly been driven by strong demand across the domestic market. In June, its US traffic rose 8%, while from January to June, it rose 7%. A healthy employment level and a steady rise in wages have been driving the demand in the US travel market.
In June, Delta’s international traffic rose 3.4% due to a 4.1% increase in the Atlantic region and 6.4% growth across the Pacific region. However, a traffic fall of 1.7% in Latin America partially offset this overall international market traffic growth in June.
From January to June, Delta’s international traffic rose 3.3%. The company recorded traffic growth of 4.6% each across both the Pacific and Atlantic regions. However, traffic in the Latin American region was down 0.2%.
Over the last year, Delta has been focusing on a low-airfare strategy to drive passenger traffic. We believe its cost-cutting measures, its One Delta initiatives, and moderate oil prices should help it continue offering lower prices to its customers. Moreover, the company is simultaneously adding more business-class seats to tap premium customers.
Among large US air carriers, Hawaiian Holdings (HA), JetBlue Airways (JBLU), and Alaska Air Group (ALK) haven’t reported their June numbers yet. In May, Hawaiian, JetBlue, and Alaska registered YoY traffic increases of 5.8%, 5.7%, and 1%, respectively.
Adding capacity across profitable routes
To capitalize on a healthy passenger travel demand environment, Delta continues adding capacity in the domestic and international markets. Last month, the company increased its seating capacity by 4.4% in the local market. In the previous six months, Delta has raised the US market’s capacity by 5.5%.
Across its international operations, Delta has raised its seating capacity by 3.3%. The company’s passenger capacity in the Pacific and Atlantic regions is up 8.6% and 3.8%, respectively. However, it has reduced its capacity across the Latin American region by 3.5%.
For the last few years, Delta has been focusing on route alignment and adding capacity to the more profitable transpacific and transatlantic routes. The transpacific route mainly connects flights between the US and Asia or Australia, while the transatlantic route connects flights between the US and Europe. In the last six months, Delta has increased its Atlantic and Pacific regions’ capacities by 5% and 6.4%, respectively.
The strategy has helped the airline improve its TRASM (total revenue per available seat mile), also known as its unit revenue. Delta’s TRASM grew 2.4% YoY to 16.70 cents in the first quarter. The company’s first-quarter TRASM growth rate was higher than those of other major US airlines. United Airlines (UAL), American Airlines (AAL), and Southwest Airlines (LUV) registered TRASM growth rates of 0.3%, 0.5%, and 2%, respectively, in the quarter.
For the second quarter, Delta expects its unit revenue to increase 3.5% YoY to 17.37 cents from 16.78 cents.
Improving load factor
Delta’s consolidated load factor improved 190 basis points to 90.4% in June. An improvement in its load factor suggests that the airline is driving more traffic than its capacity additions. Its load factor in the domestic market increased 290 basis points to 90.9%, and it increased ten basis points to 89.5% in the international market.
From January through June, the company’s consolidated load factor improved 70 basis points to 85.6%. During the period, the US market load factor expanded 120 basis points to 86.1%, while in the international market, it contracted 30 basis points to 84.7%.
Among major US air carriers, Hawaiian, JetBlue, and Alaska haven’t reported their June numbers yet. In May, Hawaiian’s, JetBlue’s, and Alaska’s load factors expanded 140 basis points, 20 basis points, and 20 basis points, respectively.
Delta stock has had a remarkable run this year so far with a YTD return of 18.5%. The stock has outperformed the Dow Jones Industrial Average and the U.S. Global Jets ETF (JETS), which are up 15.6% and 10.5%, respectively. Its YTD return is also much higher than those of its peers. Shares of Southwest Airlines, United Airlines, and American Airlines have gained 11.6%, 8.3%, and 1.9%, respectively.