Delta Had a Good October - So Why Don't Investors Care?

Delta's unit revenue fell just 1% in October, a better performance than anyone expected. Yet Delta's stock barely moved.
By Ted Reed ,

Delta (DAL) - Get Report posted surprisingly strong unit revenue in October, but investors didn't seem to notice.

Shortly before the market opened Tuesday, Delta reported that October passenger revenue per available seat mile (PRASM) declined 1%, including a 2-point headwind from foreign exchange. The results benefited from a 4% reduction in international capacity during the month, part of a winter capacity cut, the carrier said.

Results also included some spectacular operational numbers: a 99.96% completion factor and a 92% on-time performance. Delta canceled just 32 of its 85,998 flights, a spokesman said.

"October PRASM fell by 1% year over year at Delta, far better than the minus 3.5% we were expecting," wrote Wolfe Research analyst Hunter Keay in a note issued Wednesday. "The stock reacted modestly. So what was it people didn't like?"

During Delta's third-quarter earnings call, Delta President Ed Bastian forecast that PRASM would decline 2.5% to 4.5%. "November is expected to post the best monthly result and December the weakest due to the Thanksgiving holiday shift, with October somewhere in between," Bastian said.

So October, it seems, was better than expected. Keay wrote: "Assuming November is better than October (call it flat), it implies December needs to be down 6.5% for 4Q to come in at the high end of the 4Q range of 2.5%. On an easier comparison, that implies a leg down in pricing despite no capacity growth in the month."

Keay concluded that "we move to the high end of the range and assume that's basically the new guidance midpoint on what was a good data point today."

Perhaps the stock didn't move because investors still accept Bastian's guidance, or because improvement resulted from international capacity cuts and investors are more interested in domestic performance, or because yields on ticket prices don't seem to be improving.

Still, Keay raised his target price for Delta to $57 from $55 and raised his current quarter estimate to $1.23 a share, up 4 cents. Analysts surveyed by Thomson Reuters were still at $1.19 on Wednesday.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Loading ...