Airline Sector Struggles to Meet Profit Margins Due to Low Fares, CNBC's Phil LeBeau Says

The airline sector, particularly Delta Air Lines (DAL), struggles to meet profit margins as a result of cheaper seats.
By Krishna Thakker ,

NEW YORK (TheStreet) -- Delta Air Lines (DAL) - Get Report is warning about profit margins in the second quarter due to the fact that the company ended some of its fuel hedges early and passenger unit revenue is down 5%, CNBC's Phil LeBeau said on "Closing Bell" Tuesday afternoon.

The company has too many cheaper seats and as a result fares are not rising, they can't keep up with expenses, and that is bringing down passenger revenue, he said.

Other airlines are having the same issues as Delta. More flights and seats are hurting airline profits, LeBeau added.

The summer months are the busiest  for air travel and the issue is there are more seats than capacity. The airlines expected greater demand than capacity growth, he added.

"You have a lot of carriers who are cutting the prices on these seats on the lower end and weighing on passenger revenue," he said.

Shares of Delta closed down 3.13% to $35.62 and the NYSE ARCA Airline Index closed down 1.65% to $81.54 on Tuesday.

The Street Ratings team has this stock at a "buy" with a score of B. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. 

You can view the full analysis from the report here: DAL

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