Delta Reported Second Quarter Earnings, Revenue Declines

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Delta Air Lines (NYSE: DAL) announced its June 2016 quarter earnings on Thursday, the revenues declines compared to the same period last year. However, due to the lower fuel prices and strong non-fuel cost control, Delta’s second quarter earnings soar.

According to the company’s report, adjusted net income of Q2 was $1.1 billion, and adjusted earnings per share was $1.47, increased from $1.27 per share last year. In addition, adjusted pre-tax income increased $42 million from June 2015, reaching $1.68 billion in the second quarter of 2016.

However, the revenue of Delta in second quarter is not as positive as earnings. Delta’s second quarter revenue was $10.45 billion, dropping over 2%, or $260 million, although the company’s capacity increase 3.2% year-over-year. Passenger unit revenues also dropped 4.9%, showing the impact of the foreign currency and increase in capacity. Passenger Revenue per available seat mile (PRASM) decreased in all regions: Domestic PRASM decreased 5.6% year-over-year, PRASM in transatlantic market dropped 4.4%, PRASM in transpacific market dropped 5.1%, and in Latin America, PRASM decreased 4.9%. The decline of revenue was partly due to the foreign currency pressures, which is the strengthening of the US dollars against other currencies.

Expenses also declined as the revenue dropped, explaining the strong earnings of Delta. Adjusted fuel expenses of Delta declined $408 million compared to the same period last year. Hedge losses for the second quarter was $614 million, $455 million of which was from the settlement of all remaining fuel hedges for 2016. Delta would have reported much higher earnings in the second quarter of these fuel hedges expire spontaneously. Non-operating expenses also dropped by $35 million owing to lower interest expense.

For the September 2016 quarter, Delta expected its operating margins to be 19% to 21%. The projected revenue will also decrease, the passenger unit revenue will down 4% to 6% compared to the third quarter of 2015. In addition, the system capacity is expected to increase 1% to 2% year-over-year.

“The Delta people again delivered another quarter of solid profitability, superior operational performance and great customer service, continuing to strengthen our brand and our foundation for the future,” Ed Bastian, Delta’s chief executive officer said in the report.  “As we look to the remainder of the year, the large year-on-year savings driven by lower fuel are largely behind us and it is important to achieving our long-term financial targets that we get unit revenues back to a positive trajectory.”

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