Delta Air Lines, Inc. (ticker: DAL) shares dropped 2 percent Thursday morning after the company reported a second-quarter earnings miss. But despite the disappointing earnings, Delta said unit revenue and margins are trending in the right direction heading into what could be a strong second half of the year.
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Delta reported earnings per share of $1.64, slightly missing consensus analyst estimates of $1.66. Revenue on the quarter was $10.8 billion, up 3 percent from a year ago.
Passenger unit revenue increased by 2.5 percent, and capacity increased by 0.4 percent. The company’s operating margin also expanded to 18.4 percent, a 1 percent increase from a year.
Delta president Glen Hauenstein says the second quarter marked Delta’s return to unit revenue growth for the first time in two-and-a-half years.
“This improvement resulted from a strengthening demand environment and our commercial initiatives to provide customers more choice, an innovative experience and a broader global network,” Hauenstein says.
Looking ahead, Delta guided for third-quarter unit revenue growth between 2.5 and 4.5 percent on operating margins of between 18 and 20 percent and a 2 percent increase in capacity.
CEO Ed Bastian says the company’s momentum will continue in the quarters ahead.
“While 2017 is a transition period for Delta, we are encouraged by the improvement in unit revenues, leading to increasing conviction in our ability to expand margins as we move through the back half of the year,” Bastian says.
On Wednesday, Delta rivals American Airlines Group ( AAL) and United Continental Holdings ( UAL) both raised their guidance for the second quarter. American Airlines is now expecting to report unit revenue growth in the 5 to 6 percent range, while United is anticipating a 2 percent increase in revenue per available seat mile.
This week, Cowen & Co. analyst Helane Becker said Delta stock is a “must own” for investors headed into a third quarter that should include relatively easy year-over-year comparisons. In August 2016, Delta was forced to cancel roughly 2,000 flights due to a computer outage.
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So which airline stocks will be most popular going forward? “We anticipate a rotation from United and American into Delta,” Becker says.
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Delta Reports First Unit Revenue Growth Since 2015 originally appeared on usnews.com
