Delta Air Lines (DAL: 11.51 +0.13 +1.14%), the world’s largest airline, declared its second-quarter 2010 earnings on July 19, 2010. Delta Air Lines was the first major airline to announce its results for the second quarter of 2010. The company’s earnings surpassed the Zacks Consensus Estimate for the quarter but total revenue fell short of expectations. Share price for Delta Air Lines declined 19 cents on the back of disappointed revenue growth.Earnings
Delta Air Lines reported second-quarter adjusted earnings of 65 cents per share beating the Zacks Consensus Estimate of 64 cents. Including special items, net income increased to $467 million or 55 cents per share compared with a net loss of $257 million or 31 cents per share in the year-ago quarter. Reported earnings were the highest in the last 10 years. Resurgence in the global economy, improved business travel, international traffic and rising fares were the chief drivers for the airline company.
Revenue
Revenue climbed 17% year over year to $8,168 million but was well below the Zacks Consensus Estimate of $8,231 million. Passenger revenue per available seat mile (PRASM) rose 19.4% year over year, led by a 36% PRASM increase in the Pacific and a 30% increment in the Atlantic. Higher ticket prices for business travelers and growth in international routes led to the year-over-year growth in PRASM.
Airlines traffic, measured in billions of revenue passenger miles, increased 1.7% year over year. Capacity or available seat miles dipped 0.6% and load factor (percentage of seats filled with passengers) rose 190 basis points year over year.
Delta Air Lines generates revenues from various sources. Among these, on an annualized basis, Passenger, Cargo and Other revenues increased, respectively 19%, 22% and 3%.
Operating Expenses
The company’s total operating expenses inched up 5% year over year due to higher fuel cost and profit sharing expense, which were partially offset by incremental merger cost synergies from the acquisition of Northwest.
Consolidated unit cost or cost per available seat mile (CASM), excluding fuel and special items, was almost flat year over year. CASM, including fuel, increased 3.8% year over year.
Liquidity
Delta Air Lines continues to enjoy a solid balance sheet. At the end of the second quarter, the company had $6 billion in unrestricted liquidity including $4.4 billion in cash and $1.6 billion in undrawn revolving credit facilities. The company reduced its adjusted net debt to $15.6 billion from $16.4 billion at the end of the first quarter.
Operating cash flow was $1 billion and free cash flow was $778 million during the second quarter, driven by the company’s profitability and advance ticket sales. Capital expenditure was $283 million.
Guidance
Delta Air Lines expects continued revenue growth, which will likely lead to double-digit percentage gains in revenue for the third quarter.
The company expects operating margin in the range of 10%–12% for the third quarter and consolidated unit cost to be flat with the year-ago level. The current Zacks Consensus Estimate for the third quarter is 99 cents compared with 6 cents in the year-ago quarter.| Analysts' Targets | |
| Dahlman Rose & Co. | $16 |
| Buy | |
| Friday, July 16, 2010 | |
| Deutsche Bank Securities | $17 |
| Neutral | |
| Monday, June 14, 2010 | |
| J.P. Morgan Securities | $19 |
| Market Performer | |
| Monday, April 19, 2010 | |
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