Investing in Delta Airlines: A must-know company overview (Part 8 of 14)

(Continued from Part 7)

Airlines industry margins

As you can see in the chart below, Delta (DAL) has outperformed its peers in terms of margins continuously for the past four years, followed by Southwest Airlines (LUV), American Airlines (AAL), and United Continental (UAL). Delta has been able to increase its EBITDA (earnings before interest, tax, depreciation, and amortization) by increasing revenue through higher yield, as we discussed in the previous article of this series, and through cost reduction initiatives.

A study of Delta’s operating cost breakdown

Two major expenses dominate Delta’s operating expenses, comprising around 46% of total operating expense. These are fuel cost (24.9%) as well as salaries and profit sharing agreements (21.7%).

• Fuel cost in 2013 reduced by 7% due to lower purchase costs and hedging gains. Delta also expects to have lower fuel costs, though it expects profits (currently loss-making but expected to make profits in 2Q14) from a refinery acquired by its subsidiary. However, like all airline companies, Delta is also vulnerable to sudden volatility in crude prices.

• Delta has 78,000 full-time employees (18% represented by unions). According to IATA (the International Air Transport Association), the airline industry is highly unionized, with around 49% of working being union members. All other U.S. airlines except Delta are highly unionized. Despite this difference, Delta’s salaries increased 6.2% in 2013. Labor unions generally have high bargaining power because of the high costs involved in disrupting operations caused through strikes. There was also a 36% increase in profit sharing ($506 million in 2013), representing 8% of an employee’s annual pay.

• Other expenses include DA (depreciation and amortization), aircraft maintenance, aircraft rent and landing fees, and restructuring charges. Delta has managed to lower its non-fuel unit cost growth from 4.6% in 2012 to 0.3% in 1Q14, and it targets keeping this cost growth below 2% in the long run.

Continue to Part 9

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 7 of 14)

(Continued from Part 6)

Passenger revenue per ASM above industry average—a measure of efficiency

Although Delta’s revenue passenger miles, or RPM, and available seat miles, or ASM, are lower than its peers’, Delta’s PRASM is high, reflecting its operational efficiency. From the below formula, we can conclude that two factors contribute to Delta’s above-average PRASM.

• Load factor: Load factor is a measure of capacity utilization, so a high load factor is more important than higher capacity (or ASM) in terms of number of seats. Although Delta’s ASM is lower than its peers’, its high load factor (DAL – 83.8%) contributes to increasing the company’s revenue per ASM. This essentially means that in an aircraft with 100 seats, Delta carries 83 passengers, compared to United Continental, which carries only 82 passengers, leaving Delta with higher revenue to the extent of one extra passenger.

• Yield: Yield is the average price per unit. Delta’s yield ($16.9) is higher, as it attracts more corporate travelers owing to its number-one rating for the third consecutive year in the BTN Annual Airline survey. Frequent corporate travelers prefer Delta, as it scored highly on reliability and customer service, although its price is high compared to its peers’.

Delta’s competitors have higher RPM (AAL with 205.2 billion and UAL with 215.5 billion) and ASM (AAL with 245.4 billion and UAL with 259.9 billion). But these competitors have lower yields (AAL with $16.1 billion and UAL with $16.5 billion) and lower load factors (AAL with 83.6% and  UAL with 82.9%).

Southwest (LUV) and Jet Blue (JBLU) have lower capacity, with ASM of 130 billion and 43 billion, respectively. But their yields and load factors differ. Southwest (LUV) has a higher yield of $16.02 but a lower load factor of 80.1%, resulting in a PRASM of $12.8. Jet Blue’s (JBLU) yield is low, at $13.87, but it has a high load factor of 83.7%, resulting in a PRASM of $11.6.

Continue to Part 8

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 2 of 14)

(Continued from Part 1)

Delta’s segments

Delta derives 65.8% of its revenue from the passenger segment, 2.5% from the cargo segment, and 10.3% from other sources. Revenue from other sources includes baggage fee, ticket change fees, aircraft maintenance, repair and overhaul, staffing services for third parties, vacation packages, and private jet operations. A breakdown of Delta’s revenue by segments is similar for Delta’s competitors United (UAL) and American Airlines Group (AAL). However, Southwest Airlines (LUV) and Jet Blue (JBLU) have a higher percentage of passenger revenue (LUV with 94% and JBLU with 91%). Delta’s passenger segment revenue growth of 3% in 2013 was partially offset by a decline in the cargo (-5%) and other segments (-1%).

Delta’s domestic revenue accounts for 65.8% of its total revenue, followed by the Atlantic region (17.1%), the Pacific region (10.8%), and the Latin America region (6.3%).

• Domestic region: In 2013, passenger revenue per available seat mile in the region increased 5% and passenger mile yield increased by 6%, mainly due to improvements in New York airports.

• International region: Growth in the Latin America region was the highest (10.7%), followed by the Atlantic region (1.8%). The Pacific region, however, declined (-2.7%) due to devaluation of the yen.

Delta (DAL) and its competitors, United Continental (UAL) and American Airlines Group (AAG), differ in their geographic segmentation. Among the mainline carriers, Delta has the highest domestic share (65.8%), United (UAL) has the highest share in the Atlantic region (18.6%) and Pacific region (15.1%), and American Airlines Group (AAG)—a combination of American Airlines and U.S. Airways—has the highest share in the Latin America region.

Continue to Part 3

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• Part 1 – Investing in Delta Airlines: A must-know company overview
• 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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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

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• 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.