Shares of Delta Air Lines (DAL) are falling as the company reported earnings that fell short of Wall Street estimates. Delta CEO Ed Bastian spoke to Yahoo Finance stating that while the market for the lower fare category weakened, travel demand overall still remains robust.
Morningstar industrials equity analyst Nicolas Owens joins Morning Brief to give insight into Delta’s results.
Owens points out why Delta is in a tough position: “Delta’s kind of the leader of the pack, the first to report, and they have really the most, say successful, customer segmentation that allows them to record premium revenue and really great margins. I mean, 15% operating margin is quite enviable for an airline, and so if they’re saying it’s going to be a little soft in the next quarter, the assumption is that other airlines will be even softer.”
For the entire airline industry, Owens comments on the lack of newer aircrafts: “This affects more or less the entire industry, I mean, Southwest (LUV) has a unique exposure to Boeing (BA) aircraft, but in general, new planes are delayed. Even from Airbus (AIR.PA). And so you’ll just see them holding on to some of their older planes for a little longer. Those planes are a little more expensive to run, a little less fuel efficient…they require maintenance, that is also then, a little harder to come by with higher maintenance costs and part shortages in some spots. But that’s just a little bit of friction, let’s say, that the whole industry will experience.”
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