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Delta(DAL - Get Report) narrowly missed making money in the historically weak first quarter and during its earnings call flashed some positive signs.
Excluding items, the carrier reported a $39 million loss, despite a $250 million increase in fuel expense. Investors don't like it when rising fuel costs can overwhelm every good thing a company does, which is always a threat to airline shares. Nevertheless, Delta shares are up 27% this year and look like they could go higher for these four reasons.
Gains in New York
First, Delta is gaining ground at New York LaGuardia, where it is building a hub that will offer more than 250 daily departures by summer, largely because it will complete a deal with US Airways in which it gains 132 slots in exchange for slots at Washington Reagan National. New York is the world's largest travel market, so gains there are important, and no carrier has every offered so many flights from LaGuardia.
On the carrier's earnings conference call, Glen Hauenstein, executive vice president for network planning, said LaGuardia had the "biggest margin improvement for any [Delta]hub and the highest absolute margin [as a result of] increased volume of high yield close in bookings." While overall domestic passenger revenue per available seat mile grew by 12%, LaGuardia PRASM grew by 14%, Delta said.
Some Striking Comparisons
Secondly, the carrier's best first quarter since 2000, in terms of net income, included two days in March when domestic revenue per available seat mile were among the top 10 highest days for domestic unit revenue since 2008, before a merger with Northwest.
President Ed Bastian said that typically the highest domestic unit revenue days occur around July 4 and Thanksgiving, not in the normally slow first quarter. Moreover, he said, April has already produced two days that are also in the top 10, largely reflecting higher ticket prices.
Even Gains in Europe
Thirdly, counter-intuitively, the trans-Atlantic produced Delta's highest unit revenue in the first quarter, despite Europe's weakening economies. Hauenstein said. Trans-Atlantic PRASM grew 22% following a 9% capacity cut.
"Business travel in the aggregate is increasing despite the fact that Europe's in a recession," Hauenstein said. "That's contrary to what we expect. The U.S. is seeing opportunities in Europe to work (so) business traffic goes up.
" If we were to see signs of weakness, we'd take some action, but to date we have seen a contrarian (trend) in term of what headlines read versus what we see on our flights." Delta CEO Richard Anderson said the carrier also benefits from improved product, with increased lie-flat seating, and from improvement in its alliance relationships after nearly two decades. However,
US Airways(LCC) is also seeing gains on the trans-Atlantic, President Scott Kirby said Wednesday: I had an 11% PRASM gain in the region.
Both Delta and US Airways said Wednesday that demand continues to be strong. Kirby noted that April PRASM is up 9%; May is up a bit less due to difficult comparisons; June, so far, looks better than May. "The demand environment remains strong," he said. Bastian's outlook was similar -- April PRASM up 11%; high single-digit gains in May; tougher comps in June.
-- Written by Ted Reed in Charlotte, N.C.
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