Get All Access for FREEMarket News & Research,
Live Transcripts & Audio,
and a whole lot more…
Fuel expense for $DAL rose by nearly $350MM in 4Q17, as rising jet fuel prices continues to be a concern for the airline industry. With the current market jet fuel prices being 30% higher than last year, the company said it will take time for it to recalibrate and recover those costs through its revenues.
$DAL, the second largest airline behind $AAL, raised its forecast of 2018 earnings between $6.35 and $6.70 per share, citing benefits from the recent tax law that includes a lower corporate rate. The airline also expects earnings for 1Q18 to range $0.60-0.80 per share, with a 3% system capacity growth.
Taking a hit of $60MM in income due to power outage in one of its biggest hubs during December, $DAL posted a 8% YoY drop in earnings to $572MM, or $0.80 per share, for 4Q17. Excluding certain items, the airline's earnings were $0.96 per share, an increase of 17%. Revenue for the quarter rose 8% to $10.25Bil.
During the Thanksgiving holiday period (from Nov. 22 to Nov. 26), $DAL recorded zero system cancellations while carrying more than 2.35MM customers with an on-time arrival rate of 92.7%. For the month of November 2017, the airline carried 14.9MM passengers as its passenger traffic rose 3.5%, outpacing a flight capacity increase of 2.9%.
Lower load factor and withering PRASM plague the fleet-heavy United as the US airline industry enters the year-end quarter. Though American, Delta and Southwest reported huge number of flight cancellation during 3Q17 on the Hurricane impact, all held steady on their numbers with nominal losses. $AAL $DAL $UAL $LUV $ALK
$UAL expects it 4Q passenger revenue per available seat mile (PRASM) to be down 1-3%. The company also added that the off peak period between thanksgiving and Christmas would be the lowest revenue per available seat mile (RASM) period of the year. On the flip side, $DAL expects its 4Q PRASM to increase 2-4%.
While looking for ways to counter rising fuel costs, $DAL also targeting to meet its 2% CASM growth along with 1% capacity growth for the December quarter. Notably, the company expects additional $400MM in fuel expenses for the second half of the year.
Being the first major US carrier to post 3Q17 earnings, $DAL generated 6% topline growth, a 16% operating margin and $1.6Bil of operating cash flow. The airline has grown its unit revenue for the last two quarters and is on track to deliver another positive result. With strong passenger demand, unit revenue is expected to be up 2% to 4% for 4Q17.
US airlines benefited from falling fuel prices in 2015 and 2016, but it is a hard-to-predict cost that hangs over the industry. During 3Q17, $DAL paid an average of $1.61 a gallon, which is up 7.3% from prior year. The company now expects fuel price, including taxes and refinery impact, to range $1.82 to $1.87 for 4Q17.
The rising fuel prices, ongoing softness in fares and flight cancellations due to hurricanes should blow off US airline companies' profit in the recent quarter. Nevertheless, $DAL stays afloat. Profit of Delta fell 6% YoY for 3Q17, but managed to grow its revenue by 5.5% despite Hurricane Irma sweeping off $140MM in revenue from canceled flights.
Despite its operations being impacted with flight cancellations due to hurricanes, $DAL saw a 0.3% YoY growth in traffic for Sept. 2017 with a capacity increase of 0.6%. Total System traffic rose 0.3% to 17.65Bil RPMs. Monthly capacity up 0.6% to 20.92Bil ASMs. The airline carried 14.7MM passengers in the month, which was down 2.3% from Sept. 2016.
For the September quarter, $DAL expects the normalized cost per available seat mile excluding fuel to be up about 2%. $DAL cut September quarter operating margin outlook to 16.5-17.5% from 18-20%. Higher fuel prices and close-in yield softness combined resulted in close to 2 points of margin pressure for the quarter.
For the September quarter, $DAL now expects passenger unit revenue growth to be 2-3%, as the recovery in domestic close-in yields has been slower than anticipated. All-in fuel price is now expected to be $1.68-1.73, driven by the increase in market prices that began in late July.