DL beats estimates, improves profit

[700UW]

Lets do some basic math.
 
$2.05 Billion is greater than then $650 Million.

 

[AirLUVer]

Could also look at the fact that the Venezuelan currency hold has not been written off yet, where as the fuel hedge for the first quarter is gone.

 

[WorldTraveler]

Sounds about like what I was expecting.  Personally, I've long expected a reduction in the Japan beach market capacity - as hauling tour groups back and forth to SPN didn't sound like it would be the most efficient or rewarding use of assets long-term - and I suspect the currency headwind just exacerbated the economics.  In Brazil, I will be interested to see if ATL-GRU stays at 14x weekly or if the second flight drops below daily, and similarly if BSB stays daily.

 
except those beach markets were and are still high revenue markets. DL was getting average fares from Japan to Hawaii higher than what AA was getting at the peak from MIA to deep S. America. Those were both very profitable markets. They are just much smaller. DL is not going to keep capacity in there in order to cut the price to levels comparable to what HA gets from HND (one of the lowest cost airlines from HNL to Japan).

The GUM and SPN routes are equally high yielding for the distance and DL and UA both have them.

A stronger dollar just means that you don't offer as many seats - but it also doesn't mean that the dollar will stay strong and when it does, DL and other carriers can add capacity back to beach markets just as AA will have to take capacity out of Brazil but they can put it back in a few years when it makes sense for Brazilians to come shop in the US again. Right now, the strong dollar means that a lot of products, even imported, are cheaper in Brazil than they are in the US.


 

Lets do some basic math.
 
$2.05 Billion is greater than then $650 Million.

and you still can't see that AA has had revenue declines because of the currency issues and AA has NOT replaced that revenue by increasing capacity where it can generate more revenue.

Bad hedges is not just about DL's fuel hedge losses vs. AA's currency hedges. It is about the effect of the changed oil and currency environments and how each company dealt with it.

as for the timing of the Venezuela currency losses vs. fuel hedge losses, if DL is thru with its hedge losses by the end of the 2nd quarter - which they say they mostly will be - but AA still is carrying the currency impairments - and yet DL is managing to increase profits now even with the fuel hedge losses, then the rate of DL's increases will accelerate in the 2nd half of the year.

DL said its market price for fuel for the quarter was $1.718 billion. It had $467 million in booked hedge losses but also had $86 M in refinery profits for a total in quarter actual cost of fuel of $2.099B. It also booked $589 M in MTM adjustments which are FUTURE hedges that are underwater at the moment and that DL will likely have to pay on. DL's total fuel expense for the quarter above market price including future hedges that are currently underwater is $970 million. DL has a chart with that information on its earnings release from yesterday.

Further, DL grew revenue by $472 million (5%) while decreasing costs by $306 million so the notion that DL can't increase revenue with lower costs is simply not accurate.

And AA could have increased revenue on a lower cost based but they have not done that in the first quarter. AA's revenues went down and so did their costs. Their costs appear to be going down more than their revenues which is a good thing but AA is still a smaller company in terms of revenue this year than it was at the same time last year.

DL took the opposite track.

It appears from what has been released that UA is somewhere in the middle.

 

[700UW]

And their PRASM is down.

 

[WorldTraveler]

and revenue is up because DL knew what it faced and added capacity that was more than sufficient to offset the RASM decline.

AA's revenue will be down. Not sure how UA's numbers will turn out because their traffic is close to flat on close to flat RASM.

AS also had declining RASM in the last quarter but managed to increase revenues.

RASM is simply a measure of revenue generating efficiency.

Wall Street cares most about profits... how a company gets there is up to mgmt.

DL's profits increased in the March 2015 quarter.

 

[FrugalFlyerv2.0]

Wall Street cares most about profits... how a company gets there is up to mgmt.

If I'm not mistaken, that was not the tune you were singing when 2014 results were reported. Instead you were preaching that wall street cares more about other metrics than the $ profit.
I guess if it wasn't for double standards you would have no standards.

 

[WorldTraveler]

feel free to point us to the entire thread where you claim that was said.

As I recall, there were a whole lot of people crowing about AA's higher profits while failing to note that DL accounted for both taxes and profit sharing.

Wall Street cares about profits.


how mgmt. generates those profits is up to them.

paying profit sharing and higher salaries is a DL choice.

Paying taxes is not. AA gets a pass for a few years just like DL did.

btw, there was a question about taxes on DL's earnings call. IIRC, Richard Anderson said that figuring out the best way for DL to manage its taxes in the future was over his pay grade which made me fell good cause I don't understand it.

If AA can grow profits and shrink the company, then I doubt very seriously that too manhy analysts will be upset although people will ask about the future of the company if AA continues to shrink.

DL took the tack of growing revenues to overcome the fuel hedge losses and in the process overall costs reduced.

 

[FrugalFlyerv2.0]

feel free to point us to the entire thread where you claim that was said.
 

 
Well as you proceeded to type and basically prove me correct throughout your post, I think that all but speaks for itself.
 
But just so that people don't think this is an anomaly, here is just one of your gems:
http://www.airlineforums.com/topic/58133-aa-reports-record-quarterly-and-yearly-profit/?p=1146264
 
Spin away!

 

[WorldTraveler]

there is no spinning because you didn't understand what was said the first time and you still don't understand it.

AA thought it would use low fuel prices as a means to grow its Asian network; other carriers including DL are not about ready to walk away from their markets because AA now decides it wants to grow its network.

I have been saying that for only about 3 years now so it should have sunk in by now but clearly it has not.

NO ONE IS GOING TO GIVE ANYTHING UP IN ORDER TO ACCOMMODATE AA'S PERCEIVED NEED TO HAVE A STRONGER PRESENCE ANYWHERE.

 

[WorldTraveler]

based on UA's financial report for the 1st quarter which was just released, DL's decline in yield on the Pacific was also felt by UA.

UA was profitable with a big positive swing from a year ago but less than 10% operating margin.

UA's revenue shrank but fuel dropped even faster. The same story is likely with AA.

DL still has a revenue and cost advantage relative to UA.

DL is also a considerably larger airline than UA. $9.4 billion in total revenue for DL compared to $8.6 billion for UA.

 

[Eagle]

Please continue this discussion here:

http://www.airlineforums.com/topic/58459-1q2015-earnings/