Delta Leads Airline Drop After Passenger Revenue Gauge WeakensBy
Delta Air Lines Inc. led a decline among U.S. carriers after saying a closely watched financial measure weakened more than expected.
Passenger revenue for each seat flown a mile, a benchmark gauge for airlines, fell 5 percent in the second quarter, Delta said in a statement Tuesday. The carrier had previously forecast a decline of as much as 4.5 percent.
The disappointing performance added to the pessimism weighing on airline stocks, which investors have been fleeing all year amid concerns of excess seating capacity and sluggish demand for pricey last-minute business tickets. Airlines have struggled to hold the line on prices, with Delta’s yield, or average fare per mile, falling 5.1 percent in the first quarter.
“The concern that I have is if you look at the domestic yield environment, it remains under pressure,” Jack Atkins, an analyst at Stephens Inc., said by telephone.
Delta tumbled 4.2 percent to $35.25 at 11:52 a.m. in New York. A Bloomberg index of U.S. airlines fell 3 percent, with all 11 members declining. United Continental Holdings Inc. dropped 4 percent and American Airlines Group Inc. decreased 2.6 percent.
Delta also cut its projected operating margin to 17 percent in the second quarter from a previous forecast of 21 percent to 23 percent. It said a decision to settle its remaining 2016 fuel hedges boosted fuel costs by $450 million.
That shouldn’t suggest similar reductions are imminent at other U.S. airlines since Delta’s downgrade was tied to fuel hedging, Jamie Baker, an analyst at JPMorgan Chase & Co., said in a note to clients.
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