Strong demand for Delta flights bodes well for U.S. rivals

Thu Apr 14, 2016 5:27pm EDT
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By Jeffrey Dastin

(Reuters) - Delta Air Lines Inc (DAL.N: Quote) on Thursday said demand for U.S. travel is steady and domestic fares are starting to rise for the first time in a year, allaying investor concerns and giving a boost to airline stocks Thursday.

Shares of Delta rose 1 percent, while rival United Continental Holdings Inc (UAL.N: Quote) gained 2 percent and American Airlines Group Inc (AAL.O: Quote) increased 3 percent.

Delta said a months-long decline in a closely-watched financial measure - revenue divided by all its plane seats and the miles it flies them - would stop falling this year, thanks to strong bookings and an easing of currency pressures for international flights. Where demand is weak, Delta said it would cut service if necessary.

Its incoming president, Glen Hauenstein, cautioned during a conference call Thursday that the turnaround in passenger unit revenue would come a few months later in 2016 than previously forecast. However, Wall Street had been braced for worse.

According to a recent survey by Wolfe Research analyst Hunter Keay, a third of airline investors polled believed Delta would simply fail to hit the unit revenue goal this year.

Delta forecast Thursday that passenger unit revenue would decline between 2.5 percent and 4.5 percent in the second quarter from a year ago. It dropped 4.6 percent in the first quarter.

"From here, we believe the first plausible case for (unit revenue) recovery can be made," said JPMorgan analyst Jamie Baker in a note on Delta's results.

Baker highlighted that U.S. airlines have made multi-city trips in the United States more expensive to book, and they are growing U.S. domestic capacity slower, therefore undercutting rivals less.   Continued...

Delta planes line up at their gates while on the tarmac of Salt Lake City International Airport in Utah in this September 28, 2013 file photo. REUTERS/Lucas Jackson