Investors have sent shares of Delta Air Lines (DAL 1.25%) sky-high over the past year, as the stock price has more than doubled since last April. But as strong as the company has become, the competitive threat from long-established rival United Continental (UAL -0.06%), as well as newly merged American Airlines Group (AAL 0.14%), continues to pose a long-term challenge to Delta's earnings dominance.

The entire airline industry has recovered strongly from the financial crisis, with just about every carrier participating in the profitability gains resulting from higher fares, greater utilization rates, and the implementation of lucrative ancillary fees. But Delta has done an extremely good job of outpacing United Continental, as well as American and US Airways, on key industry benchmarks, and that has led to greater investor excitement about Delta's prospects.

Can the company keep up its winning ways in light of the American-US Airways merger, or will new challenges prove too difficult for it to overcome? Let's take an early look at what's been happening with Delta Air Lines over the past quarter and what we're likely to see in its next quarterly report, which is due on Tuesday.

Stats on Delta Air Lines

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$9.03 billion

Change From Year-Ago Revenue


Earnings Beats in Past Four Quarters


Source: Yahoo! Finance

How are Delta's earnings soaring so much?
Analysts have had mixed views on Delta's earnings in recent months. They've boosted their fourth-quarter estimates by 10%, but they've cut their full-year 2014 projections by more than 12%. The stock hasn't faltered, however, climbing another 31% just since mid-October.

Delta's third-quarter earnings showed the continued strength that the carrier has had lately. Revenue jumped 6%, leading to a 29% gain in earnings per share. A combination of cost-cutting efforts, lower fuel costs, and growth in its domestic demand helped push earnings up, outweighing falling performance in its Pacific segment.

A big part of Delta's dominance has come from superior performance in several key areas. Delta's net income dwarfs those of its rivals, with its strong profit margins allowing it to take greater advantage of revenue falling to its bottom line. In addition, the key corporate-traveler segment rates Delta well above American, United, and Southwest Airlines (LUV 0.71%), giving the company command of a group of customers that traditionally is much more profitable for an airline than the typical recreational flyer. Because of its strong profits, Delta has been able to eliminate debt and get itself in better position to deal with competitive challenges of the future.

Still, Delta isn't giving up on economy-class customers. Indeed, unlike United and American, Delta has ramped up the size of its economy sections, having smaller business-class and premium-economy areas in order to get more customers on board its planes. For Delta to do so without sacrificing its reputation among business travelers is a testament to its operational strength.

Moreover, Delta is working hard to press its advantage. The company has attacked Alaska Air in the Seattle market, having expanded service there four times between October and December in an effort to build a stronger gateway to the Pacific region.

In the Delta earnings report, watch to see whether the company is able to build on the strong news it released earlier this month, saying passenger unit revenue rose 10% from good timing of the Thanksgiving holiday and strong demand among travelers. As long as those favorable conditions persist, Delta should be able to keep using its operational excellence to fly over the competition.

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