estimates its unit revenues in May rose 7%, and the carrier expects second-quarter operating margins of between 14-16%, higher than analysts expected, as the carrier continues to reap the rewards of lower fuel costs from its Trainer refinery.
Thanks to the Trainer facility, Delta’s fuel costs are on average 10 cents lower than the industry’s, and every 1 cent per gallon equals about $40 million per year for the airline. This allows Delta to outperform the industry margin performance by about $400 million per year, CFO Paul Jacobson told analysts.
Delta is producing about 40,000 barrels a day of jet fuel and expects to turn its first profit at the facility in the second quarter.
Delta’s second-quarter fuel price per gallon is estimated to be between $2.93-2.98 per gallon, down from between $2.97-$3.02 per gallon forecast. This lower cost per gallon suggests margins will persist toward the high end of the 14-16% range previously predicted, UBS analyst Darryl Genovesi said.
Delta is at the high end of the spectrum, with its 7% passenger revenue per available seat-mile (PRASM) in what Cowen & Co. analyst Helane Becker says will be a strong month for the industry. "The demand environment remains very strong, led by the continued strong U.S. domestic market," she said.
Systemwide, Delta reported May traffic that was 5.8% higher than last year on capacity that was 3.6% higher. Load factors for the domestic system were 2.4 points higher than last year at 88.3%, while load factors fell in most international sectors, with the lone exception of the trans-Atlantic market, which rose 2.2 points to 88%.