Delta Air Lines Inc.’s monopoly of its lucrative regional business continues to yield fruit as the U.S carrier delivers best revenue momentum in 5 years.
For the first three months through March 2018, Delta’s adjusted operating revenue increased by 8 percent or $715 million to $9.80 billion from $9.02 billion the previous year.
The top line growth (sales) was partly driven by a 23 percent increase in cargo revenue and a $78 million increase in total royalty revenue.
Revenue from Domestic operations, which makes up 64.23 percent of total sales of $9.80 billion, grew by 7 percent to $6.30 billion while income from Atlantic operations, which contributed 10.17 percent of the total figure, spiked by 15 percent to $1.05 billion in the period under review.
The Delta people delivered a strong March quarter, and our record revenue was a direct result of the great service and operational reliability they provided for our customers. It’s an honour to recognize their hard work with $183 million toward our 2018 profit sharing, according to Ed Bastian, Delta’s chief executive officer.
“We have confidence in our plan to grow earnings in 2018 through top-line growth, improving our cost trajectory, and leveraging our international partnerships,” said Bastian
Experts say regional operations that sport higher fares, profit margins and less competition in local hubs are the major drivers of Delta’s earnings in the last few years.
They added that the regional segment makes Delta king of profit hill among major airlines.
Delta enjoys a monopoly on about 60 percent of its regional markets, according to a 2017 report by Stifel Financial Corp.
This compares with 53 percent at American and 41 percent at United. The report added.
Delta forecasts pre-tax margin of between 14 percent and 16 percent in the second quarter of 2018 as it continues to turn each Naira invested in sales into higher revenue.
It also estimates an Earning per Share (EPS) of $1.80 of $2.00 in the second quarter of 2018.
“We are seeing Delta’s best revenue momentum since 2014, with positive domestic unit revenues, improvements in all our international entities, strong demand for corporate travel and double-digit increases in our loyalty revenues,” said Glen Hauenstein, Delta’s president.
“With our solid pipeline of commercial initiatives, delivered with industry-leading Delta service, we expect to maintain this momentum and deliver total revenue growth of 4 to 6 percent for the full year,” said Hauenstein.
Delta’s adjusted pre-tax income for the March 2018 quarter was $676 million, a $104 million decrease from the March 2017 quarter, as record revenues were offset by higher fuel prices and other increased costs including a $44 million impact from severe winter weather.
Total adjusted operating expenses for the March quarter increased $817 million, driven by higher fuel prices, investments in employee wages and profit sharing, and higher depreciation expense.
Adjusted fuel expense increased $317 million, or 20 percent relative to March quarter 2017, as the year- over-year increase in market fuel prices was tempered by the lapping of prior year hedge losses and improved fuel efficiency. Delta’s adjusted fuel price per gallon for the March quarter was $2.01, which includes $0.05 of benefit from the refinery.
CASM-Ex increased 3.9 percent for the March 2018 quarter compared to the prior year period driven by April 2017 wage increases and accelerated depreciation due to aircraft retirements.
Unit costs were further pressured by approximately 1 point from the impact of severe weather and foreign exchange. Delta expects this period will mark the highest non-fuel expense growth for the year.
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