To The Moon

Stocks rallied Friday to kick off November as $Amazon.com(AMZN)$ led big technology stocks into the green and traders looked past a disappointing jobs report.

The $.DJI(.DJI)$ gained 288.73 points, or 0.69%, ending at 42,052.19. The $.SPX(.SPX)$ advanced 0.41% to close at 5,728.80, and the $.IXIC(.IXIC)$ rose 0.8% to 18,239.92.

The best-performing concepts is Airlines Concept.

Considering the different perceptions of the stock, this time TigerPicks chose $Delta Air Lines(DAL)$ to have a fundamental highlight to help users understand it better.

$Delta Air Lines(DAL)$

Delta Air Lines is a major airline in the United States headquartered in Atlanta, Georgia. It is the United States' oldest operating airline and the seventh-oldest operating worldwide.

Delta, along with its regional subsidiaries and contractors operating under the brand name Delta Connection, operate over 5,400 flights daily and serve 325 destinations in 52 countries on six continents.

Delta is an Industry Cost Leader

In many industries, being a cost leader means to have the lowest costs. For the airline industry, Delta has been the leader in increasing costs esp. with labor in the wake of the covid pandemic. Delta offered extensive early retirements during the pandemic and was forced to hire large numbers of employees post-pandemic.

As skilled airline labor became harder to find, DAL led the industry in raising labor costs, first by settling with its pilot union for the most lucrative airline labor agreement ever. Delta followed shortly thereafter with raises for all of its non-union workgroups, which compose most of the company, avoiding the need for costly retroactive payments.

Nearly all airlines have had to follow Delta’s leadership in hiking pilot costs, and those higher labor costs have been a key challenge which lower cost airlines including $Spirit Airlines(SAVE)$ $Frontier Group Holdings, Inc.(ULCC)$ have had to absorb.

$Southwest Airlines(LUV)$ was last to settle with its pilots and the cumulative effect of higher pilot and flight attendant costs was apparent in Southwest’s financial results which were reported on October 24, 2024. LUV is paying for labor settlement now but has not delivered the revenue turnaround to support those costs.

DAL 3Q2024 cost summary

American settled with its flight attendant union during the third quarter. Part of the reason for $American Airlines(AAL)$ ’s loss was for the one-time retroactive payments that the company made as part of that agreement. $United Continental(UAL)$ has yet to settle with its flight attendants for a post-covid contract, and it can be expected that their labor costs will increase by hundreds of millions of dollars per year while they, too, will have to spend $500 million or more on retro payments.

From a labor cost standpoint, Delta has absorbed all of the costly increases that the industry faces, while competitors such as UAL have to complete the process. Many other airlines including AAL and LUV have raised their labor costs but continue to under-deliver on revenue.

Revenue outlook remains strong

One of the more interesting parts of the financial reports for the big 3 U.S. airlines is their revenue by global region reports because it shows where they have added capacity and helps investors see how well those strategies work in various parts of the world. Airlines report their revenue in four global regions – domestic, transatlantic, transpacific and Latin America.

Delta reported that it increased capacity in every global region except across the Atlantic while saw lower unit revenue (revenue per available seat mile) metrics in every region, ranging from 3% in the domestic market to a double-digit decline over the Pacific – on 30% more capacity. Airlines have been contending with a weaker revenue environment, which is particularly concerning with higher costs. DAL and UAL reported fairly comparable unit revenue metrics, while AAL was significantly worse.

DAL revenue by region 3Q2024

Starting last quarter, Delta led the industry in calling out the growth of non-productive capacity that has returned to the industry post-covid. In this quarter, Delta noted that much of that unproductive capacity is coming out of the system as a result of actions by lower cost carriers.

Delta noted that the outlook for the fourth quarter and beyond is strong based on less aggressive discounting, indicating that less capacity will translate into better revenue metrics for Delta and the industry. United echoed similar remarks when it reported in the week following Delta. The revenue outlook is good based on capacity control by low-cost carriers.

Fuel prices are low

All airlines benefitted from lower fuel prices. While the hurricane system was difficult in a number of parts of the U.S. in the third quarter, very little energy infrastructure was affected. Crude oil prices began to decline earlier this year and remained low for much of the third quarter, setting up low prices for the fourth quarter. Airlines covered a significant part of their higher labor costs with lower fuel prices. Delta’s refinery is contributing little to its lower fuel prices, but its fuel efficiency continues to improve modestly.

Crude Oil one year chart

Airbus is delivering for Delta

While $Boeing(BA)$ has been the subject of much aircraft manufacturer news this week, Airbus has continued to deliver new aircraft to Delta. On October 23, 2024, Airbus was performing flight tests on four different aircraft before delivery to Delta from the four Airbus model families – the A220, A321NEO, A330NEO, and A350 families.

Delta is buying from all of Airbus’ model lines and Delta is receiving new aircraft while other airlines that are dependent on Boeing are not receiving aircraft or they are significantly delayed. Delta’s largest fleet expenditures are on widebody, long-range aircraft from the A350 and A330NEO families which will help Delta grow its international networks, helping explain its aggressive growth across the Pacific – as well as to retire older aircraft.

DAL 3Q2024 statistical summary

New airplanes mean more growth

Delta is also expected to continue to receive large numbers of A350 and A330 intercontinental aircraft in 2025 including potentially its first A350-1000, the longest range and largest new generation aircraft available, allowing Delta to further grow into Asia.

Delta restructured its Pacific network in the years following its acquisition of Northwest Airlines in 2009 which momentarily gave Delta the position as the largest airline across the Pacific, but with a network that never consistently made money.

With the A350 and three hubs in the western U.S. – Seattle, Los Angeles, and Salt Lake City - Delta is set to expand its footprint to Asia, building on its position as the largest U.S. airline from the eastern U.S. to Asia, thanks to Delta’s Asian network from Atlanta and Detroit.

Delta also expects to begin service to Riyadh as part of its partnership with Riyadh Airlines which is backed by the Saudi sovereign wealth fund. In addition, Delta is expected to return to India, a market it has not served since the pandemic.

Delta’s growth in Latin America and to Europe and Africa is more subdued, but revenue data indicates that all global regions are contributing to Delta’s profitability, something that United repeatedly notes happens for that airline. As long as there are opportunities to grow internationally Delta appears to be best positioned among U.S. airlines to grow.

DAL 4Q2024 guidance

2025 looks brighter than 2024

2024 was a good but not great year for Delta. They continued to build their network and grew their network while running a reliable operation which results in better customer service rankings than its peers. 2024 saw industry revenue weakness and cost pressures which impacted Delta in part because the revenue outlook was less than Delta originally expected.

2025 looks to be brighter than 2024 because of DL’s more stable cost outlook and its continued strong ability to generate revenues where consumers want to fly and how they want to spend their money. In addition, Delta has a predictable supply of new aircraft with a disproportionate focus on widebody aircraft that will support efficient growth esp. into regions of the world where Deltas has not been as strong but where the industry is seeing good results. Muted industry capacity growth provides a healthy backdrop for Delta’s own growth.

DAL one year chart

Delta stock had a healthy 2024 – up 36% YTD and up over 70% in the past year – both well above market indices. Yet DAL stock didn’t lead the airline industry – that honor goes to UAL among U.S. carriers. Delta remains the highest revenue airline in the world and has the highest market cap, but it lost some of its luster. Unlike UAL, DAL pays a dividend, but UAL recently announced it will buy back about 10% of its outstanding stock.

DAL remains a well-run company that should continue to deliver for the remainder of 2024 and into 2025. Competitively, some of the reasons it lost some of its luster will moderate in 2025.

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 16 Wall Street analysts offering 12 month price targets for Delta Air Lines in the last 3 months. The average price target is $63.89 with a high forecast of $85.00 and a low forecast of $52.00. The average price target represents a 9.42% change from the last price of $58.39.

Resource:

https://seekingalpha.com/article/4729458-delta-air-lines-stock-q3-hasnt-lost-leadership-role

What are your thoughts on $Delta Air Lines(DAL)$ ?