Investing in Delta Airlines: A must-know company overview (Part 4 of 14)

(Continued from Part 3)

Operating performance in the airline industry

The airline industry uses the following unique metrics to measure operating performance.

• Revenue passenger miles, or RPM: This is the number of revenue passengers multiplied by the distance these passengers travel in the reporting period. It’s also called “traffic.” This metric defines the demand for air travel and is influenced by macro factors like GDP growth, per-capita income, and disposable income.
• Passenger mile yield: This metric is calculated as passenger revenue divided by the RPM. If we can consider the RPM as volume, we can consider yield as the average price.
• Average seat mile, or ASM: This is a measure of capacity calculated as the number of seats available multiplied by the distance traveled during a period. Capacity can be increased by increasing the number of flights, adding new routes, or increasing the frequency of flights.
• Load factor: This is a measure of capacity utilization and it’s calculated as the number of seats occupied divided by the total number of seats.
• Passenger revenue per available seat mile, or PRASM:  This is called the “unit revenue” and it’s calculated as the passenger revenue divided by the ASM.
• Cost per available seat mile, or CASM: This is the operating cost per ASM.

High yield drives revenue and profitability

Delta’s Operating revenue grew at a five-year CAGR (compound annual growth rate) of 6.1% from 2009 to 2013, mainly driven by a 6% growth in passenger mile yield, a 0.6% growth in RPM, and a load factor of more than 80%. The PRASM has increased at a five-year CAGR of 6.5%. These improvements have been possible because of various joint ventures and alliance agreements undertaken to improve network efficiency and investments in major airports for better infrastructure. Capacity, measured by ASM, increased 1% in 2013, and CASM decreased to 14.8 cents in 2013 from 15 cents in 2012, as the company adopted fleet restructuring and fuel cost reduction initiatives to reduce costs. However, costs remain higher compared to 2009′s 12.3 cents.

Each of Delta’s competitors (UAL, AAL, LUV, and JBLU) differ in yield. Mainline carriers like Delta (DAL), United (UAL), and American Airlines (AAL) have higher yields compared to low-cost carriers like Southwest (LUV) and Jet Blue (JBLU), whose primary objective is to reduce prices.

Continue to Part 5

Browse this series on Market Realist:

• Part 1 – Investing in Delta Airlines: A must-know company overview
• Part 2 – Delta Airline’s key operating segments and geographic segments
• Part 3 – Why Delta Airlines scores highly on customer satisfaction surveys

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Investing in Delta Airlines: A must-know company overview (Part 1 of 14)

Delta Airlines

Delta Airlines (DAL), headquartered in Atlanta, is one of the leading legacy mainline airlines in the U.S. The company provides scheduled air transportation for passengers and cargo. It operates a fleet of 1,275 aircrafts, comprising 743 mainline carriers and 532 regional carriers. The airline’s diversified network coverage—with hubs located in major airports of Amsterdam, Atlanta, Cincinnati, Detroit, Minneapolis, New York, LaGuardia, Paris, Salt Lake City, Seattle, and Tokyo—enable the company to serve 165 million customers each year to 322 destinations (97 international and 225 domestic) in 59 countries across the globe. Delta offers more than 4,900 daily flights.

Market share: Low-cost carriers are gaining ground

Delta Airlines, with a market share by passenger miles of 16.3%, is among the top six U.S. airlines, accounting for about 70% of the domestic market. Apart from legacy mainline carriers like Delta Airlines (DAL), United Airlines (UAL), American Airlines, and U.S. Airways, low-cost carriers like Southwest Airlines (LUV) and Jet Blue (JBLU) also have a significant share in the market. These low-cost carriers have the highest ACSI (American Customer Satisfaction Index) scores of 78 and 79, respectively, mainly due to low fares and lower additional fees. Delta has the highest ACSI score of 71 among the legacy carriers and is recognized as the “most admired airline” by Business Travel News and “airline of the year” by Air Transports World.

Many major airline companies, including Delta Airlines (DAL), United Continental Holdings (UAL), Southwest Airlines (LUV), and Jet Blue (JBLU), are part of the Dow Jones Transportation Average Index Fund (IYT), which tracks the performance of the transportation sector of the U.S. market, including airlines, railroad companies, trucking, freight, and industrial companies.

Continue to Part 2

Browse this series on Market Realist:

• Part 2 – Delta Airline’s key operating segments and geographic segments
• Part 3 – Why Delta Airlines scores highly on customer satisfaction surveys
• Part 4 – Measuring Delta Airlines’ performance with key operating metrics

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Delta Airlines has apologized for a tweet — posted after Monday’s thrilling 2-1 U.S. World Cup team’s victory over Ghana — that used a picture of a giraffe to represent the African country.

“Congrats team #USA!” Delta wrote in the tweet, which included an overlay of the score above stock images of the Statue of Liberty and a giraffe.

But the airline deleted the tweet after Twitter users pointed out that while the continent of Africa may be home to giraffes, Ghana is not.

PHOTO: Delta Airlines thinks there are giraffes in Ghana. There aren’t. http://t.co/9VsWsCfQSe pic.twitter.com/pGMJ6p0ljA

— theScore (@theScore) June 17, 2014

“Sorry, Delta,” Yahoo’s Graham Watson wrote on Dirty Tackle. “Not all African countries feature all of the animals you get to see at the zoo.”

I’m guessing that when you book a flight to any of Nigeria or Kenya or the Ivory Coast or Ghana, @Delta tickets just say ‘Africa, whatever’

— Bruce Arthur (@bruce_arthur) June 17, 2014

The airline later issued an apology.

We’re sorry for our choice of photo in our previous tweet. Best of luck to all teams.

— Delta (@Delta) June 17, 2014

• Delta Airlines

Delta Airlines wanted to congratulate the United States after its World Cup win against Ghana on Monday night, so it sent out a tweet with iconic images of the two countries. “For the United States we’ve got the Statue of Liberty,” thought Delta’s social media editor. “That’s easy. And Ghana … hmm … well, it’s in Africa, so a giraffe should do it.” Unfortunately for Delta, the African continent is more complex than how it appears in the Babar books, and giraffes usually don’t live in Ghana.

It turns out Twitter users are surprisingly knowledgable about Ghana, and Delta deleted the message after it became the butt of many jokes. (It should also be noted that the Statue of Liberty is a little over 305 feet tall, or about 16 giraffes.)

The airline then posted an apology, writing “We’re sorry for our choice of photo in our precious tweet. Best of luck to all teams playing in the World Cup.” A few minutes later, they removed that message too, clarifying that they were referring to their “previous tweet,” not their “precious tweet.”

We’re sorry for our choice of photo in our previous tweet. Best of luck to all teams.

— Delta (@Delta) June 17, 2014

All in all, a tough night for Delta’s social media team. They should probably just take tomorrow off and spend tomorrow chilling out on the beach while admiring Mount Rushmore.

Delta became the first casualty of social media inaccuracy following USA’s 2-1 win over Ghana during the World Cup on Monday.

[Related: John Brooks’ late goal gives U.S. 2-1 win over Ghana in World Cup opener ]

The airline giant tweeted out a congratulatory message to Team USA with a picture of the Statue of Liberty and the No. 2 and then a picture of a giraffe and the No. 1 to represent the score.

PHOTO: Delta Airlines thinks there are giraffes in Ghana. There aren’t. http://t.co/9VsWsCfQSe pic.twitter.com/pGMJ6p0ljA

— theScore (@theScore) June 17, 2014

Only problem is that there are no giraffes in Ghana.

Sorry Delta, not all African countries feature all of the animals you get to see at the zoo. The use of this stereotype was noted by pretty much everyone with an Internet connection or data plan and the backlash came fast and fierce.

It prompted Delta to issue an apology — twice.

We’re sorry for our choice of photo in our previous tweet. Best of luck to all teams.

— Delta (@Delta) June 17, 2014

The first version of this tweet, which was deleted, actually had Delta apologizing for its “precious” tweet.

Perhaps if Delta tweets out after the U.S.-Portugal game, they’ll use a totally accurate picture of a matador.

Graham Watson is the editor of Dr. Saturday on Yahoo Sports. Have a tip? Email her at dr.saturday@ymail.com or follow her on Twitter Follow @YahooDrSaturday

More World Cup coverage from Yahoo Sports:

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Questions? Comments? Let us know: @billboard

NEW YORK (TheStreet) — Delta Airlines Group  (DAL) fell Wednesday along with other airline stocks after Lufthansa cautioned its profit would be lower than previously expected this year thanks to labor union strikes and less-than-expected revenue growth in its passenger and cargo businesses.

Lufthansa said it expects an operating profit of approximately EUR1 billion ($1.35 billion), or approximately EUR1.3 billion after adjustments. The airline had previously forecast an operating profit of EUR1.3 billion to EUR1.5 billion, with adjusted operating profit of EUR1.7 billion to EUR1.9 billion. Lufthansa cautioned about potential dangers to its earnings forecast when it reported first-quarter results in May but maintained its guidance at the time.

The news sent Lufthansa shares down approximately 10% and drove other airline stocks down, as well. Delta was down 4.15% to $40.18 at 11:02 a.m.

Must Read: Warren Buffett’s 25 Favorite Stocks

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Separately, TheStreet Ratings team rates DELTA AIR LINES INC as a “buy” with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

“We rate DELTA AIR LINES INC (DAL) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company’s strengths can be seen in multiple areas, such as its notable return on equity, reasonable valuation levels, solid stock price performance, compelling growth in net income and revenue growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow.”

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• Compared to other companies in the Airlines industry and the overall market, DELTA AIR LINES INC’s return on equity significantly exceeds that of both the industry average and the SP 500.
• Powered by its strong earnings growth of 2400.00% and other important driving factors, this stock has surged by 136.33% over the past year, outperforming the rise in the SP 500 Index during the same period. Regarding the stock’s future course, although almost any stock can fall in a broad market decline, DAL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
• The net income growth from the same quarter one year ago has significantly exceeded that of the SP 500 and the Airlines industry. The net income increased by 2942.8% when compared to the same quarter one year prior, rising from $7.00 million to $213.00 million.
• The revenue growth significantly trails the industry average of 42.0%. Since the same quarter one year prior, revenues slightly increased by 4.9%. Growth in the company’s revenue appears to have helped boost the earnings per share.
• You can view the full analysis from the report here: DAL Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

For Immediate Release
 
Chicago, IL – June 12, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the United Continental Holdings Inc. (UAL–Free Report), Southwest Airlines Co. (LUV–Free Report), Delta Airlines Inc. (DAL–Free Report), American Airlines Group Inc. (AAL–Free Report) and International Paper Company (IP–Free Report).
 
Today, Zacks is promoting its ”Buy” stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Wednesday’s Analyst Blog:

Airline Stock Roundup

Airline stocks reflected a mixed trend in the past week’s trading sessions. While some stocks reacted positively to the International Air Transport Association (:IATA) data, some stocks recorded a lackluster week.   

Stocks like United Continental Holdings Inc. (UAL–Free Report) and Southwest Airlines Co. (LUV–Free Report) made headlines for gaining altitude in share prices. Delta Airlines Inc. (DAL–Free Report) was also in the limelight for its deal with Airbus.

Recap of Last Week’s Most Important Stories

1. One of the major events past week was the International Air Transport Association’s (:IATA) profit guidance. Last week, IATA announced its 2014 profit outlook for the global airline industry, which has been trimmed down by $700 million from the previous forecast to $18 billion. While IATA chief economist Brian Pearce remains hopeful about the performance of Middle East and North American aviation companies, a slowdown in China’s economy and volatile global trade are key factors that force a conservative outlook on this year’s industry profits.

2. United Continental gained significant momentum on Monday last week driven by IATA’s bullish view on the North American airline industry. The stock gained $2.33 or 5.25% on Jun 2 in NYSE. Notably, the Chicago-based carrier also ended the day substantially higher than the NYSE Composite. (Read More: United Continental Shares Gain Altitude)

3. Another major airline that registered a notable takeoff was Southwest Airlines, which reached a fresh 52-week high of $27.22 last week on Jun 3, before closing the trading session a little lower at $27.20. This reflected a solid return of over 95% in the past 12 months. Moreover, the company’s expected long-term earnings growth rate of 30.8% also makes the stock appear attractive. (Read More:Southwest Airlines Hits 52-Week High Anew)

4. Last week, Delta Airlines announced plans to purchase 15 new jets from Airbus in a deal worth $1.65 billion. The company has ordered 15 narrow bodied A-321 aircraft, with deliveries scheduled 2018 onward. This fleet will replace some of Delta’s less efficient domestic aircraft. (Read More: Delta Extends Airbus Order)

Delta Airlines also reported its traffic for May 2014, which was driven by strong demand in both the domestic and transatlantic markets. Strength in Atlanta, New York and Seattle boosted the carrier’s performance and airline traffic moved up 5.8% year over year to 17.73 billion.

5. Another major news from the past week include American Airlines Group Inc. (AAL–Free Report) subsidiary U.S. Airways’ Codeshare Agreement with Air Berlin PLC Co, which is also a member of Oneworld airline alliance. The new agreement will foster relation between the two air carriers and provide passengers of U.S. Airways better access to Germany and other European destinations.
 
International Papers’ Veritiv to Trade June 18

International Paper Company (IP–Free Report) announced the timing with regard to the upcoming merger of its distribution solutions business, xpedx, with UWW Holdings, Inc. The new publicly-traded company, Veritiv Corporation, to be formed as a result of the merger will begin trading on a ‘when-issued’ basis on New York Stock Exchange (:NYSE) under symbol ‘VRTV WI’ on June 18.

Thereafter, on Jul 2, 2014, the company will commence regular trading under the ticker ‘VRTV.’

The board of directors of International Paper has declared that its shareholders as of Jun 20, 2014, will be entitled to receive 8.16 million shares of Veritiv’s common stock, under a pro rata distribution system. The distribution ratio is estimated to be around 0.0188 shares of Veritiv common stock for each share of International Paper, calculated on the basis of the latter’s common stock currently outstanding. The distribution is subject to certain conditions.

Any fractional shares of Veritiv common stock will be aggregated and sold in the open market, with the resultant proceeds being distributed in cash to relevant shareholders on a pro rata basis.

International Paper had announced the spin-off of its struggling xpedx distribution business in a tax-efficient transaction under a Reverse Morris Trust structure in January. Per the deal, xpedx will merge with UWW Holdings, the parent company of Unisource Worldwide, to form a new entity, Veritiv Corporation. International Paper will receive $400 million in cash and own 51% stake of the new company, and UWW Holdings will own the remaining stake.

Following the completion of the merger, Veritiv will own and operate the combined distribution solutions businesses of xpedx and Unisource. It will provide end-to-end print, packaging facility and logistic solutions to customers, by leveraging its extensive geographic reach, rich product portfolio and differentiated service platform.

North America-based Veritiv’s annual revenues are projected to be in the range of $9 to $10 billion. The merger is expected to generate about $150 million to $225 million in annual net synergies.

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Airline stocks reflected a mixed trend in the past week’s trading sessions. While some stocks reacted positively to the International Air Transport Association (:IATA) data, some stocks recorded a lackluster week.   

Stocks like United Continental Holdings Inc. (UAL) and Southwest Airlines Co. (LUV) made headlines for gaining altitude in share prices. Delta Airlines Inc. (DAL) was also in the limelight for its deal with Airbus.

Recap of Last Week’s Most Important Stories

1.    One of the major events past week was the International Air Transport Association’s (:IATA) profit guidance. Last week, IATA announced its 2014 profit outlook for the global airline industry, which has been trimmed down by $700 million from the previous forecast to $18 billion. While IATA chief economist Brian Pearce remains hopeful about the performance of Middle East and North American aviation companies, a slowdown in China’s economy and volatile global trade are key factors that force a conservative outlook on this year’s industry profits.

2.    United Continental gained significant momentum on Monday last week driven by IATA’s bullish view on the North American airline industry. The stock gained $2.33 or 5.25% on Jun 2 in NYSE. Notably, the Chicago-based carrier also ended the day substantially higher than the NYSE Composite. (Read More: United Continental Shares Gain Altitude)

3.    Another major airline that registered a notable takeoff was Southwest Airlines, which reached a fresh 52-week high of $27.22 last week on Jun 3, before closing the trading session a little lower at $27.20. This reflected a solid return of over 95% in the past 12 months. Moreover, the company’s expected long-term earnings growth rate of 30.8% also makes the stock appear attractive. (Read More:Southwest Airlines Hits 52-Week High Anew)

4.    Last week, Delta Airlines announced plans to purchase 15 new jets from Airbus in a deal worth $1.65 billion. The company has ordered 15 narrow bodied A-321 aircraft, with deliveries scheduled 2018 onward. This fleet will replace some of Delta’s less efficient domestic aircraft. (Read More: Delta Extends Airbus Order)

Delta Airlines also reported its traffic for May 2014, which was driven by strong demand in both the domestic and transatlantic markets. Strength in Atlanta, New York and Seattle boosted the carrier’s performance and airline traffic moved up 5.8% year over year to 17.73 billion.

5.    Another major news from the past week include American Airlines Group Inc. (AAL) subsidiary U.S. Airways’ Codeshare Agreement with Air Berlin PLC Co, which is also a  member of Oneworld airline alliance. The new agreement will foster relation between the two air carriers and provide passengers of U.S. Airways better access to Germany and other European destinations. 

Performance

The following table shows the price movement of the major airline players over the past 5 trading days and during the last 6 months:

Over the trailing 5 trading days, most of the airline stocks exhibited mixed stock price movements. 

Top gainers include GOL Linhas (GOL), JetBlue Airways (JBLU) and American Airlines Group Inc. (AAL) with growth of 7.7%, 3.5% and 2.0% respectively. On the flip side, the biggest losers were Hawaiian Holdings, Inc (HA), Delta Air Lines and Alaska Air Group, Inc. (ALK) with stocks down 0.7%, 0.6% and 0.5%, respectively.

In terms of performance over the past 6 months, most of the stocks have fared reasonably well with the exception of Copa Holdings, which dropped 7.5% over the period. The biggest gainers in the 6-month span were Spirit Airlines, Inc. (SAVE) and Hawaiian Holdings, sporting growth of 115.5% and 82.3%, respectively.

What’s Next in the Airline Biz?

So far this week, major carriers like United Continental and Southwest Airlines have posted their May 2014 operational performance results. Both airline companies recorded growth in their traffic results.

Further, just couple of months after initially hinting at plans to sell LiveTV, JetBlue has divested its in-flight entertainment subsidiary to French defence electronics company Thales Group for a cash consideration of $399 million

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