Delta Air Lines (DAL) reported solid third quarter results and gave strong fourth quarter unit revenue guidance this morning.
Third quarter earnings came in modestly above expectations (per usual) and revenue was in-line. Delta preannounced third quarter unit revenue (passenger revenue per available seat miles or PRASM) and operating margin last week so there was much more focus on the guidance or fourth quarter.
Delta called for fourth quarter PRASM growth of +2-4%, up from +1.9% in the third quarter. Delta was expected to call for a sequential declaration in PRASM growth. Operating margin guidance of 11-13% was a below estimates due to
Delta saw yield improvement in August, September and into October. Business revenue grew 6%.
The company expects continued positive unit revenue. Partnerships and investments in overseas markets are paying off with improved margins.
Delta continues to outperform peers. On the call, management said its margin premium relative to peers is sustainable. They also said that they need to do a better job of explaining why, in order to demand a higher earnings multiple.
Delta's enterprise value trades at ~5x EBITDA estimates, in-line with the airline average and below the multiplies that Southwest (LUV 6.5x) and American Air (AAL 6.1x) enjoy.