Shares of Delta Air Lines (DAL) +1% are lifting after the company pre-announced strong second quarter results this morning.
Delta raised guidance for its second quarter EPS and pre-tax margin as "demand for Delta's product and service remains strong." Adjusted total revenue per available seat mile (TRASM, or unit revenue) grew 3.5%, at the high end of its 1.5-3.5% outlook as given in April.
Delta has consistently outperformed its peers in terms of unit revenue growth. Last quarter, Delta said that it expects to maintain a healthy unit revenue premium to the industry. Delta may be benefitting to some degree as peers face capacity challenges due to the grounding of Boeing's 737 Max aircraft. Delta does not have the 737 Max in its fleet.
Still, the strong guidance indicates that demand for air travel, both in the corporate sector and in the leisure segment, remains quite favorable.
Delta set off a major round of airline consolidation when it acquired Northwest Airlines in 2008. Fast forward to today, and we have a big three [including American (AAL) and United (UAL)], or a big four if you want to give a nod to Southwest (LUV), leading the airline industry.
The industry was once notorious for its poor investment profile, but consolidation and subsequent pricing power has improved the sector's outlook.
Delta shares rose over 300% from 2013 to 2014. The stock has traded in a slightly upward trending channel since then. The stock currently sits just a few percent from its all-time highs. Of course, airlines are still transportation stocks beholden to macroeconomic trends.
The stock has a 2.5% dividend yield and trades at ~9x EPS and 6x EV/EBITDA estimates, in-line with peers.
Airlines still trade at a discount to the rails and other industrial industries. Airline executives have yet to really make progress on closing that valuation discount.
Delta will provide more details regarding its second quarter performance on Thursday, July 11, when guidance for the third quarter and 2019 will be in focus.