Should You Invest in Delta Airlines?

OVERVIEW

Delta Airlines Incorporation is a passenger and cargo airline with destinations in many countries and cities all over the world. They have hubs in Atlanta, New York (JFK and Laguardia), Detroit, Minneapolis, Salt Lake City, Paris, Amsterdam, Seoul, and many others. They have a stake in Air France, Virgin Atlantic, Aeromexico, GOL, and Korean Air. They also offer maintenance and charter services to third parties.

Why You Should?

  1. Delta Airlines will benefit from the optimism of the COVID-19 Vaccine. Investors will put more money into this recovery play with more positive news of a vaccine. After the pandemic, Delta has said that it will optimize its fleet for more leisure destinations with strong demand and not business travel destinations as this demand will come back slower.
  2. Delta Airlines has one of the strongest airline balance sheets. This allows them to take on more debt than other carriers can and will help them go through this tough economic time. Investors will buy into this stock as a good recovery play and will stay away from others who will take a longer time to recover from the impacts of this pandemic.
  3. Delta Airlines has done a good job in modernizing its fleet which results in lower operating costs for the airline as they incur lower fuel and other costs. The company is phasing out its entire Boeing 777 fleet and retiring Airbus A330’s as well as Boeing 757’s and 767’s in favor of their more efficient flagship Airbus A350, Airbus A321, A220, and Boeing 737’s. This will benefit the company in the future.
  4. Delta has done a good job of lowering their operating costs and other expenses to reduce losses. They have retired fleets early to cut costs, they have cut low-demand routes and have cut frequencies with low demand, and they have optimized their fleet to only carry cargo to places with no passenger demand. This will help them navigate through these tough times.
  5. Delta has done a good job of lowering their operating costs and other expenses to reduce losses. They have retired fleets early to cut costs, they have cut low-demand routes and have cut frequencies with low demand, and they have optimized their fleet to only carry cargo to places with no passenger demand. This will help them navigate through these tough times. One example is the resilience of their business over the past couple of financial years which has aided them to build one of the strongest airline balance sheets. In the financial year of 2019, the company reported revenues of around 47 billion and profits of around 4.7 billion. Both of these metrics are higher than what the company reported in the financial year of 2018 when it reported revenues of around 44.4 billion and profits of around 3.9 billion.

Why You Should Not?

  1. Delta Airlines faces tough competition from domestic as well as international airlines. Airlines such as American, United, and Southwest offer products to/from the US, and airlines such as Singapore Airlines, Emirates, and Qatar offer good international connectivity. This might hurt the company in the future.
  2. The COVID-19 Pandemic has decimated leisure travel and business travel for the years to come. Delta has capped passenger flights to 60% capacity and has had low prices to increase passenger demand. They have optimized their planes to carry cargo as the demand for cargo operations have skyrocketed due to the pandemic. However, this has negatively impacted the carrier.
  3. Analysts who follow these airline stocks say that some demand for business travel has been permanently decimated due to more efficient options such as web-conferencing. The majority of investors and airlines say that it will take years for demand to fully recover. If you invest in this stock, you might not see returns instantly but I am currently holding my position for the long term.

MY OPINION

In my opinion, I think that Delta Airlines is a good recovery play as people will fly again after getting vaccinated. A strong balance sheet and a modern fleet that carries essential cargo around the world will benefit the company to get through these tough economic times. However, it is uncertain when demand will return to normal and competition might further hurt Delta in the future.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.