DL May RASM leads to quarterly RASM adjustment

[WorldTraveler]

DL's latest traffic report indicates that yield softness is spreading to the domestic market.... exactly the concern that analysts have said would result from excess capacity growth in the industry

"Consolidated passenger unit revenue (PRASM) for the month of May decreased 5.5 percent year over year, with roughly half of the decline due to foreign exchange pressure and lower surcharges in international markets and the remainder from lower domestic yields. Delta now expects consolidated PRASM for the June quarter to decline approximately 4 to 5 percent, with the change from previous guidance a result of lower-than-expected close-in domestic business yields."

http://finance.yahoo.com/news/delta-reports-financial-operating-performance-130000671.html

the only real question will be how AA and UA adjust their RASM guidance for the quarter since they do not report monthly RASM and what WN reports - which probably won't be until next week.

I predict a bad day for US airline stocks.

 

[jimntx]

It's what happens when you flood markets with unneeded capacity.  Duh!

 

[WorldTraveler]

and the obvious question is where it is happening, who is doing it, and how widespread it is in other markets.

It is not accurate or possible to know that it is solely DL's actions or that it might not be related to larger macroeconomic issues.

Since DL is the first carrier to report RASM specific guidelines, we have repeatedly seen DL note revenue trends which end up existing at other airlines but that DL simply is the first one to speak up in noting them.

the only other carrier that reported traffic today is AS and they noted a double digit increase in capacity - far larger than the rate of DL's capacity growth - with load factors down. They have reported similar trends in recent months with lower RASM.

DL is a far larger airline than AS so it is highly unlikely that the overlap markets that AS and DL are fighting over are enough to drive a RASM decline as large as DL suggests - unless it is only a little domestic related and a lot int'l.

WN just launched a late summer and fall sale with fairly deeply discounted fares in some markets so it is likely that there is pricing weakness across the domestic industry and that will become apparent in the next couple weeks as other carriers report.

 

[FrugalFlyerv2.0]

"Consolidated passenger unit revenue (PRASM) for the month of May decreased 5.5 percent year over year, with roughly half of the decline due to foreign exchange pressure and lower surcharges in international markets and the remainder from lower domestic yields. 

Over-exposure to Japan (yen) and Eurozone (eur)?

 

[WorldTraveler]

that has been an ongoing issue and has been repeatedly identified to industry analysts and all 3 of the big 3 have reported similar issues.

The part that is new is domestic yield weakness esp. for close in business travel.

 

[swamt]

Delta reports 5.5 percent decline in key revenue measure

 

[WorldTraveler]

and Gary Kelly rolled back WN's planned capacity increase from 8 to 7% right before DL's announcement.

coincidence? no.

If WN could deliver yield increases and still throw in that much capacity, it wouldn't have blinked.

DL is simply the first carrier to report monthly RASM but WN not only will but the trend will be obvious with other carriers that report only on a quarterly basis.

The low fuel price induced capacity dump of 2015 is coming to an end and if yields don't come back up, carriers tat are growing above the rate of GDP (see WN) will be forced to reduce capacity even more.

Given that WN is dumping capacity at 3-4 times the rate of GDP growth and far above the rate of GDP growth and what any legacy is doing, Wall Street has a laser like ability to focus on the carrier(s) that are hurting industry profitability.

 

[700UW]

Delta Leans Toward Cutting Capacity as United Weighs Option
 
http://www.bloomberg.com/news/articles/2015-06-04/delta-leans-toward-cutting-u-s-seat-capacity-after-labor-day

 

[700UW]

http://news.investors.com/060415-755722-delta-considering-cutting-us-capacity-this-fall.htm?ven=yahoo&src=aurlled
 

Delta Air Lines Mulls U.S. Capacity Cut This Fall

 

 

[700UW]

http://finance.yahoo.com/news/delta-cuts-2nd-qtr-margin-183900323.html

 

[WorldTraveler]

cutting capacity is the right thing to do when yields start to fall.

Everyone wants to think they can grab market share while fuel prices are low but there is no assurance that fuel prices will stay low or that capacity can be pulled when it no longer works; thus, analysts don't want to see excess capacity in the market and want to see airline seat growth at or below GDP.

'United tumbled more than 2 percent after Compton said United was pricing competitively to maximize revenue in markets such as Chicago, where American Airlines Group Inc and Southwest Airlines Co have posted lower fares.'

and DL is cutting capacity in int'l markets in the winter which swing heavily to foreign point of sale which is being impacted the most by a strong dollar.

DL is still the highest market cap airline stock in the US at more than 20% above AAL and 66% more than UAL.

 

[WorldTraveler]

UA is expecting a quarterly RASM decline that will be larger than DL's.

http://finance.yahoo.com/news/united-reports-may-2015-operational-205200688.html

 

[WorldTraveler]

AA's traffic report shows expectations of a 6-8% decrease in RASM for the quarter, the greatest reduction among the big 3. WN has yet to report.

http://finance.yahoo.com/news/american-airlines-group-reports-may-120000079.html

all 3 of the big 3 show weakness on the Atlantic; AA has the lowest percentage of Euro denominated traffic.

AA pulled 7.5% of its Latin capacity and LF was nearly flat.

 

[WorldTraveler]

http://finance.yahoo.com/news/southwest-airlines-reports-may-traffic-123000668.html

and WN now says its RASM for the quarter will be within a point of DL's which shows that the RASM weakness in the industry is being driven by domestic more than int'l issues at this point.

 

[700UW]

http://blogs.barrons.com/stockstowatchtoday/2015/06/29/delta-airlines-the-last-of-the-bad-news/
 

Delta will report June traffic results and update 2Q15 guidance Thursday. The rest of the airlines will report next week. We expect similar trends in June as we saw in May, with load factors continuing to slip with the international segment leading load factors lower. Delta’s current 2Q PRASM guidance of down 4% to 5% implies June PRASM to be down 4.5%. Given the difficult weather in late June we believe there is some upside to June PRASM expectations but are not expecting much in the way of significant improvement from previous guidance…