Delta Air Lines Inc (NYSE:DAL): fuel price-dip fuels quarterly growth

Posted by George Brook June 14, 2013 0 Comment 908 views

Lower jet fuel costs and an increased travel demand have seen the health of airlines improving a little and Delta Air Lines Inc (DAL) raised the lower end of its operating-margin projection for the current quarter. DAL rose 3.54% to $18.71 at the Thursday close, which has been the airline’s biggest gain since 7 June. Atlanta-based Delta Air Lines, Inc (NYSE:DAL)’s stock saw a 58% rise this year. For the quarter ending 30 June, operating margin will be 10%- 11% which is high compared to previous estimate of 9%-11%.

There had been some concern about a softening in demand after DAL, United Continental Holdings Inc as well as other carriers had reported May unit revenue that had either changed very little or was lower. June has started off at a clipping pace and it seems like the quarter up ahead is shaping up to be a stronger one. Fuel prices are heading downward and the revenue environment has stabilized. By passenger traffic, Delta is the second-largest carrier in the world.

The fluctuating fuel

Throughout the stuttering recovery over the last one year, the shadow of oil prices has been a constant threat. Though they do seem to be on a recovery path, a full-scale rebound doesn’t really seem to be in the offing yet. The Middle East seems in no hurry return to normalcy anytime soon. There isn’t any evidence of a real oil shortage right now; the undercurrent of nervousness definitely exists. The double jeopardy is that uncertainty has a tendency to push the US dollar higher, which implies an even larger cost-increase in several other currencies.

At the current prices (Brent crude is around US$115), jet fuel prices are near tipping-point for the airlines to be profitable. While the limited fuel-surcharges may stay, there is no surety that the market has the resilience to take any more in terms of increased fares. The double impact will have an impact on the bottom line. Unfortunately, price rises stimulate an almost-inverse relationship.  On one hand, there is an increase in costs while on the other there is a softening of yields due to the slowdown in discretionary spending.

The momentum in increased business travel demand seems like it will continue at least in the immediate future and Delta Air Lines Inc (DAL) definitely has its sights set on it.

About George Brook

George Brook covers money and politics for GDP Insider. George is a veteran journalist who has also covered Congress, national political conventions and presidential politics. George also covers the White House as well as economic and domestic policy for GDP insider. George's reporting has won numerous awards, including two Scripps Howard awards, two National Headliners, two Gerald Loeb Awards, as well as honors from Sigma Delta Chi and the National Press Club.

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