The changes in DAL stock over the recent years have been far from consistent. Returns for the stock were -3% in 2021, -16% in 2022, 23% in 2023, and 52% in 2024.
In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 - indicating that DAL underperformed the S&P in 2021 and 2023.
Delta reported revenue of $15.6 billion in Q4, up 9% y-o-y. Its adjusted fuel costs decreased 18% to $2.4 billion, bolstering the bottom line. Its earnings of $1.85 on a per-share and adjusted basis compares with $1.28 in the prior-year quarter. The company has guided for adjusted earnings to be in the range of $0.70 and $1.00 in Q1'25.
Below are key drivers of Delta Air Lines value that present opportunities for upside or downside to the current Trefis price estimate.
Fuel Expense % Passenger Revenue: Fuel costs represent the biggest operational expense for airlines. For Delta, this expense has fallen from 28% of their total operating costs in 2022 to 20% in 2024.
Given the current outlook for oil prices, significant decreases in fuel costs are not anticipated in the short term. If crude oil prices increase and fuel expenses rise above the expected 21% to reach 25% by the end of the forecast period, this could negatively impact Delta's stock price by approximately 20%.
Conversely, Delta's passenger yield (revenue per passenger-mile) was $0.21 in 2024. If this yield increases more than projected to $0.26 by the end of the forecast period, it could lead to a potential upside of over 20% in Delta's stock price.
Delta Air Lines is a major global passenger airline with an extensive network connecting the Americas, Europe, Asia-Pacific, Africa, the Middle East, the Caribbean, and Australia. Headquartered in Atlanta, Delta and its subsidiaries operate a vast flight schedule every day.
Delta's route network strategically utilizes a hub system at several key airports. These hubs include Amsterdam, Atlanta, Cincinnati, Detroit, Memphis, Minneapolis (St. Paul), New York (JFK), Paris (Charles de Gaulle), Salt Lake City, and Tokyo (Narita). This hub-and-spoke model efficiently gathers and distributes passenger traffic from regional markets to domestic and international destinations, as well as to other hubs within the network. Delta's diverse fleet of aircraft, varying in size and capability, provides the necessary flexibility to meet the demands of both leisure and corporate travel.
To further enhance its network reach, Delta has established alliances with numerous domestic and international airlines. These collaborations encompass code-sharing agreements, reciprocal benefits for frequent flyer programs, joint promotional activities, and the shared use of airport facilities. Delta is also a founding member of SkyTeam, one of the world's three major global airline alliances.
Delta boasts one of the most comprehensive service networks among U.S. airlines. This extensive network is a significant advantage in attracting corporate travelers to its loyalty program, which often leads to higher revenue per passenger as many corporate travelers prefer premium cabin options.
Delta has made strategic equity investments in key international airlines, including Virgin Australia, Virgin Atlantic, and Aeromexico. These investments strengthen Delta's presence in important global air travel markets, contributing to increased passenger numbers and overall revenues.
As fuel expenses represent the largest single cost for airlines, fluctuations in crude oil prices can significantly affect their profitability. To mitigate this risk, Delta employs fuel price hedging strategies.
The demand for air travel is closely linked to the health of the global economy. Economic downturns or recessions typically lead to a decrease in flight demand, impacting passenger traffic for airlines. Conversely, sustained economic growth in the U.S. and worldwide generally drives an increase in air travel demand, allowing airlines to potentially raise fares, improve occupancy rates, and increase profits.
Delta, like many airlines, is actively exploring and implementing strategies to increase revenue through ancillary services. These include fees for baggage, access to onboard Wi-Fi, and the purchase of food and beverages. To support this, airlines are investing in enhancing their offerings, such as improved in-flight Wi-Fi and entertainment, upgraded lounge facilities, and seats with extra legroom.
Studies indicate that North American airlines, as a whole, generate substantial ancillary revenues compared to other global regions. This growth is primarily driven by airlines' enhanced merchandising efforts and the introduction of more a la carte service options.
Over the past decade and continuing into the present, low-cost carriers such as Southwest and JetBlue have captured a significant portion of the U.S. market. Their strategy of offering lower fares continues to attract a considerable number of passengers, suggesting that these carriers will likely maintain or even expand their market share in the future.
The U.S. airline industry has undergone significant consolidation in the past couple of decades through mergers and acquisitions, including major combinations such as US Airways and America West, Delta and Northwest, United and Continental, Southwest and AirTran, and American and US Airways.
This consolidation has generally led to improved profitability for the remaining airlines. With fewer competitors, airlines have been able to exercise more restraint in adding new capacity. Prior to this period of consolidation, airlines often added capacity aggressively to increase their market share, which sometimes resulted in an oversupply of seats and consequently lower profit margins for all carriers.
Looking ahead, the industry is expected to remain profitable as long as airlines continue to manage their capacity growth responsibly.
