Delta Air Lines: Reasons to Remain Invested

Delta Air Lines (DAL) has done impressively in the last three months, which is not surprising given the steady growth that the company is seeing in its financials. The airline major has particularly benefited from reduced fuel pricing environment across the globe and successfully implemented its superior cost-cutting efforts to maintain top line growth and deliver enhanced investor returns.

Impressive cash flow generation

Delta Air Lines continues to deliver robust cash flow generation with $1.6 billion of free cash flow and $2.5 billion of operating cash flow.
This significant cash flow generation has enabled Delta to enhance returns to its key stakeholders by offering $1 billion in share repurchases and dividends whereas also lowering its non-GAAP total debt by an additional $250 million to nearly $7.1 billion.

Additionally, Delta recently bought back another $50 million and expects to return approximately $2.5 billion to key stakeholders for this year in line with its continued commitment towards returning a minimum of 50% of free cash flow through key share repurchases and dividends.

During the second quarter, Delta delivered 99.8% conclusion factor that includes 43 days with no major cancelations. The company’s major on time rate grew two points to 85.3. Importantly, none of its local or global competitors are even nearer to this superior performance level.

The healthy balance sheet of Delta is at the center of its continued and significant growth story primarily driven by the airline major’s ongoing cost reduction initiatives and core strategic growth investments.

Strategic investments

Recently, Delta strategically invested in GOL which is estimated to strengthen the company’s prospects of becoming the major domestic carrier in Brazil which is further supported by the planned investments in AeroMexico making it a major operator with strongest network of airlines across Latin America.

The outstanding financial position of Delta has primarily allowed it to make strategic new growth investments while maintaining strong cash position to deliver improved and sustainable investor returns.

Delta is continuously and successfully operating with its key partner Air France KLM that has enabled it to develop an extremely profitable Trans-Atlantic business in addition to its planned Virgin Atlantic investment which is estimated to continue to support the airline’s major to again successfully implement such kind of model with several other new partners in well-diversified regions and markets across the globe.

Going forward into the fourth quarter of 2015, Delta’s domestic growth is estimated to be nearly 2% with global capacity expected to decline by 3.5% for the quarter. This notable contraction in worldwide capacity is mainly due sharp currency headwinds and significant economic weaknesses witnessed across some countries throughout the world.

The continued successful business operations of Delta with its key airline partners are believed to be negatively impacted by unfavorable currency translations and forecasted global economic weakness.

Delta has enhanced its paid first-class load factor to approximately 57% or eight points on year-over-year basis depending on a record 7% increase in the first-class seats. Further, its solid relationship with American Express delivered excess of over $60 million in revenue for the quarter.


Hence, Delta Air Lines looks like a good bet due to improving efficiency and shareholder-friendly management. So, investors should remain invested in Delta for the long run due to the points discussed above.
Published on Oct 21, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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