Delta Air Lines Inc. Warns Slowdown In Int’l Markets; Stock Falls

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The stock price of Delta Air Lines Inc. (NYSE:DAL) was trading $38.13 per share, down by more than 5% around 3:01 in the afternoon in New York. The decline came after the company warned of a potential slowdown in some international markets due to excess capacity that would force the fare prices lower than expected.

The comment of Delta Air Lines regarding the slowdown in international markets was based on concerns raised last month after Deutsche Lufthansa AG (ADR) (OTCMKTS:DLAKY) (ETR:LHA) lowered its earnings forecast this year and next year. One of the reasons mentioned by the German airline carrier was the excess capacity across the Atlantic.

Josepj Denardi, an analyst at Stifel Nicolaus & Co told Bloomberg, “The commentary regarding international excess capacity is a bit of a concern. Delta also essentially reduced their profit sharing guidance for the year, which indicated maybe a more cautious outlook on their part regarding profitability.”

Delta Air Lines revenue

Delta Airlines reported that its consolidated passenger unit revenue (PRASM) increased 4.5% in June compared with the same period a year ago. The company said continued strong corporate and domestic travels “offset lower than expected international yields driven by industry-wide capacity increases.”

Delta Air Lines also noted that the World Cup lowered business demand to Latin America last month. The company said its unit revenues increased 6%, which was in line with its previous guidance.

Raymond James analyst Savanthi Syth commented, “That’s moderation from the 6% we saw in May. Shares have been strong, and I think people are taking profits on fear that unit revenue growth is moderating. It was weaker than what we were looking for, and even what Delta might have been expecting in June.”

Delta Air Lines outlook

For the June quarter fiscal 2014, Delta Air Lines expected to achieve an operating margin in the range of 14% to 16%, up from 11% in the same quarter a year earlier. The company estimated to report ~$2.0 billion of operating cash flow and ~$1.5 billion of free cash flow.

Delta Air Lines estimated its profit sharing expenses in the range of $325 million to $350 million and non-operating expenses of about $175 million.

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