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Delta Air Lines, Inc. (NYSE: DAL ) on Thursday released its June metrics in which Passenger Revenue per Available Mile (PRASM) fell 4.5 percent. At the same time the company also tightened its second quarter PRASM guidance to negative 4.5 percent (from a -4 to -5 percent range) due to lower international surcharges, foreign exchange pressures and softer domestic yields in select markets. Delta also increased its second quarter capacity guidance from around three percent to around 3.5 percent, while reiterating other metrics, including $2.40-$2.45 fuel and flat casm ex. In a note on Thursday, Jamie Baker of JPMorgan noted that Deltas guidance is a non event and provided no surprises. On the other hand, the analyst had plenty to say regarding the Department of Justices investigation. According to Baker, the implication that airlines enjoy pricing power flies in the face of current data and that roughly 80 percent of fare increase tracked have failed in recent years. We cant help but find humor in the suggestion of collusion, Baker wrote. Related Link: Exclusive: Airline ETF Manager Weighs In On Industry In Light Of DOJ Investigation Baker said that the airline industry is one of the most transparent industry in existence as ticket prices and schedules are publicly available up to a year in advance. The analyst added that the Department of Justice is not investigating if airlines have pricing power, gouging consumers or holding back on growth, rather investigating if managements illegally coordinated pricing and capacity decisions with each other. As an example, Southwest Airlines Co (NYSE: LUV ) cutting its 2016 growth plans after the equity shellacking it received is not illegal, Baker argued. The analyst pointed out that if Southwest where to respond to a hypothetical e-mail from a competitor declaring: Raise your [expletive] fares 20 percent. Ill raise mine the next morning, would be highly illegal and is an actual quotation between CEOs of two competing airlines in the 1980s. Bottom line, Baker is comfortable presuming that illegal price collusion is not taking place, rather airlines are following property legalities in ensuring respectable returns for investors. Shares of Delta remain Overweight rated with an unchanged $63.50 price target. See more from Benzinga 8 Community Bank Stocks Face Mass Downgrade At Raymond James On Challenging Operating Environment Global Satellite Internet Network Could Be A Game-Changer… Heres How To Profit From It BMO Upgraded Africa Oil, Kosmos Energy This Morning: Heres Why © 2015 Benzinga.com. Benzinga does not provide investment advice. All rights reserved. View comments
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