Delta Air Lines (NYSE:DAL) returned to profit growth last quarter, following several quarters of margin contraction and falling earnings. However, despite the company’s target of growing EPS at least 15% annually for the next few years, Delta Air Lines stock still trades for about 10 times earnings. This indicates that many investors doubt Delta can achieve its targets.
Obviously, Delta Air Lines’ management feels otherwise. On the company’s recent earnings call, several top Delta executives talked about why they are so optimistic. Here are five key points that they highlighted.
A revenue recovery is well underway
Our unit revenues are improving and tracking in line with the plan we laid out at our December investor day. The same is true for our non-fuel cost. However, fuel prices are lower, and this gives us increasing confidence in our ability to drive margin expansion in the back half of the year.
— Delta Air Lines CEO Ed Bastian
Back in December, Bastian warned investors that the company would fall short of its long-term financial targets in 2017, as fuel and labor cost increases were outpacing revenue growth. Most notably, Bastian predicted that Delta’s operating margin would fall by up to 2 percentage points year over year in 2017, ending up around 15%.
Fortunately, the outlook has improved over the past seven months. Unit revenue growth has accelerated as expected, while oil prices have declined modestly since December. As a result, Delta’s management now believes that a 16% full-year operating margin is achievable.
Transatlantic business demand is surpassing expectations
… I’m pretty enthusiastic about how the first half of the year has shaped up relative to the capacity levels that are in the transatlantic. And what we’ve seen is really a higher demand in the business cabin on a…