Strong Passenger Revenues Still Drive Delta Air Lines’ Sales

Delta Air Lines: A Strong Start to a New Year (Part 2 of 5)

(Continued from Part 1)

Growth in passenger revenue

Similar to fiscal 2014, Delta Air Lines’ (DAL) passenger revenues continued a strong growth trajectory in 1Q15. Most of Delta’s revenue growth came from its passenger sales, while cargo sales remained flat. DAL is trying to diversify its revenue streams to reduce business risk. One key result of diversification is ~15% of this quarter’s revenue came from immunized joint ventures.

Sales apart from tickets that include first-class up-sell, branded fares, and preferred seating saw a 27% growth and contributed an incremental $50 million to sales. However, going ahead, passenger revenues will be impacted by lower international surcharges and a strong dollar.

PRASM (passenger revenue per available seat mile) declined 1.7% for the quarter, while passenger load factor declined to 81.7% from 82.7%. The airline saw a 3.6% increase in traffic and 5% increase in capacity for the first quarter of fiscal 2015.

Domestic versus international performance

DAL’s domestic business saw strong demand from increased air traffic, which is evident from the 9% growth seen in 1Q15. However, international business lagged mainly because of the currency depreciation against the US dollar across many emerging markets. To curb this adverse impact on its international business, the company plans to reduce capacity by ~3% year-over-year. We’ll look more at the company’s capacity reduction plan for 2015 later in the article.

In 2014, Delta Air Lines’ (DAL) revenue from the domestic market was 65%. Domestic revenues for American Airlines (AAL) and United Continental Holdings (UAL) were 57%. Delta’s low-cost peers, Southwest Airlines (LUV) and JetBlue Airways (JBLU), had domestic revenues of more than 90%.

Investors can invest in companies like Delta that have a positive growth trend through the iShares Transportation Average ETF (IYT), which holds ~38% in airline stocks and ~3% in Delta Air Lines. You can also invest in the SPDR S&P Transportation ETF (XTN).

Continue to Part 3

Browse this series on Market Realist:

• Part 1 - Delta Air Lines’ 1Q15 Earnings: A Mixture of Hits and Misses

• Part 3 - Delta Air Lines Reduces Costs to Improve Profitability

• Part 4 - Delta’s Strong Cash Flow Helps Share Buybacks and Dividends