Coverage: Delta’s report causes concern about airlines

U.S. airlines marked the second-sharpest decline on the Standard & Poor’s 500 Index following a weak revenue report from Atlanta-based Delta Air Lines Inc.

Michael Sasso and Mary Schlangenstein of Bloomberg News had the news:

Passenger revenue for each seat flown a mile fell 7 percent in July from a year earlier, the country’s second-largest carrier by traffic reported Tuesday. The Atlanta-based airline blamed bad bets on currency exchange, excess seat supply on trans-Atlantic flights and reduced prices for tickets booked shortly before travel.

The S&P Airlines Index fell 4.7 percent at 11:58 a.m in New York. Delta tumbled 6.3 percent to $36.98, the second-worst performance among companies on the S&P 500.

“The group is off on the fact that you’re probably going to have negative headlines on PRASM numbers for July, which should not have been a surprise,” said Stephens Inc. analyst Jack Atkins. Delta warned investors two weeks ago that revenue for each available seat mile could be weak. “Maybe there was some expectation that things strengthened in the back half of July. I was not assuming that.”

Airlines’ so-called unit revenue has fallen for more than a year, in part because of heavy competition in certain U.S. markets and an oversupply of seats in some regions overseas.

Joshua Jamerson and Susan Carey of The Wall Street Journal noted a warning about traveling to Miami due to the Zika virus was also to blame:

The results from the No. 2 air carrier in the U.S. came a day after the Centers for Disease Control and Prevention advised pregnant women to avoid the Miami neighborhood where officials believe mosquitoes may be transmitting Zika, a rare move by the federal agency amid an outbreak of the virus there. Analysts said both the Zika warning and Delta’s report were pushing stocks lower.

Shares of all major U.S. airlines were in the red on Tuesday. Delta traded at the bottom of the S&P 500 as its stock fell 7.4% in afternoon trading in New York. Shares of American Airlines Group Inc., the nation’s No. 1 carrier by traffic, fell 5.9%. The No. 3 airline, United Continental Holdings Inc., fell 6.5%.

Airlines with the greatest exposure to South Florida include American Airlines, JetBlue Airways Corp. and Spirit Airlines Inc. But Delta and Southwest Airlines Co. aren’t insubstantial in that market. So far, the airlines have regularly said they were seeing no effects on their traffic demand from fear of the virus. It isn’t clear whether that situation will change now that cases appear to involve people infected by mosquitoes in the continental U.S., as opposed to in Puerto Rico, Caribbean nations and Latin America.

UBS analyst Darryl Genovesi said that although news of a Zika outbreak in Florida had been reported last week, the CDC’s decision Monday to issue travel guidance likely added to investors’ anxiety.

Dan Burrows of InvestorPlace.com wrote about how cheaper fuel prices are also affecting the airlines:

Low fuel prices prompt airlines to boost capacity, which pressures air fares. Additionally, lower fuel costs lead to smaller fuel surcharges on international flights. That puts pressure on unit revenue, or Passenger Revenue per Available Seat Mile, a key industry measure.

Put that against the backdrop of a waning demand thanks to a sluggish global economy, Zika, terrorism, Brexit — you name it — and stocks like DAL are getting punished.

The latest beating came after Delta Air Lines said unit revenue fell 7% in July. Unit revenue measures the sales generated by a single seat per mile flown. It can be used and it’s been in steady decline across the industry.

Unfortunately, the declines at DAL appear to be accelerating based on the latest report. In the most recent quarter, PRASM fell 4.9%.