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Hype Asset of the Day | April 21, 2022

Delta Air Lines (DAL)

The airline industry has been getting absolutely hammered over the past couple of years, however, things are seemingly starting to turn around. Delta Air Lines (DAL) has long been a top performer in the airfare sector and now that earnings are getting back on track, tons of investors are asking ‘is Delta a good investment?’ Over the past day, Delta enjoyed a 127.5% increase in mentions across the web, signaling buyer sentiment could be shifting toward bullishness and with share prices up 8% YTD, it might be the perfect time to add Delta to your portfolio before things start to really takeoff.

Is Delta a Good Investment? - Positives

There’s a lot of buzz surrounding Delta right now but does the airliner live up to the hype? Here are a few of the main ‘pro delta’ arguments.

  • The airline sector was perhaps affected the worst by the pandemic, flights were grounded and costs surged. However, it seems things are beginning to return to normal as Delta reported operating revenue was 79% recovered from 2019 pre-pandemic figures, beating out estimates of between 72-76%. Domestic travel recovered by 83%, international by 54%, and corporate by 50% & 35% for domestic and international respectively. This shows just how well Delta is bouncing back and highlights its strength going forward.

  • Delta has been working on upgrading its fleet by purchasing a host of 321neo aircraft. This move could prove to be very fruitful for Delta. Fuel prices are through the roof and it's one of the largest expenses for any airliner. However, the 321neo is able to run on at least 6% less fuel per air mile against 2019 numbers.

  • Most companies operate with some amount of debt on their books but actively making an effort to pay it off is a sign of a business thinking about the long-term. Delta clearly understands this as it’s aiming to reduce its $21 billion of debt to $15 billion by 2024. Delta’s CFO Dan Janki even went as far as stating “Reducing debts is our top financial priority.”

  • While airlines across the board have struggled to bring in meaningful revenue, Delta’s partnership with American Express has been paying off nicely earning Delta $1.2 billion in Q1 2022, up 25% versus 2019’s numbers. Furthermore, Delta plans to continue improving this revenue source with aims of $5 billion total for 2022 and $7 billion by 2024.

  • Despite increased fuel prices wreaking havoc on the profitability of airlines, Delta has managed to partially offset this cost by increasing its prices. Not only does this increase Delta’s margins but it also shows that the demand for airfare is still high.

Is Delta a Good Investment? - Negatives

Whenever you’re deciding whether an investment is right for you, it’s crucial to weigh the negatives against the positives to see if it’s really worthwhile. Here are a few reasons why Delta might not be as hot as everyone believes.

  • As we’ve touched on, increased fuel prices heavily damaged airliner’s margins. Delta’s operating expenses increased by 11% throughout Q1 as the Russia Ukraine conflict caused issues with supply chains. Delta forecasted fuel prices would rise from $2.35 to $2.50 but they ended up soaring to $2.79, eclipsing estimates by over 10%.

  • Delta reported a net loss of $940 million for Q1 2022. While its better than expected financials lessened the blow, there are still a lot of factors to overcome before things return to smooth sailing. Pilot shortages are leading to a reduction of flights (and therefore revenue) or forcing airlines to offer higher rates, again lessening margins. Combine this with the chance of another COVID variant bringing things to a halt once again, and it’s evident the path is far from clear for Delta.

Hype Asset of the Day - Conclusion

While Delta has been recovering well and beating out earnings estimates it remains unprofitable. Despite management claiming the company is on track to break out of this slump during Q2, only time will tell. For the time being, Delta could certainly be a worthwhile buy as it’ll inevitably spike once flights return to pre-pandemic levels and customers rush to book holidays after losing the privilege for two years. If you’re interested in learning about more trending stocks before anyone else, you might want to check out our premium plans. Alternatively, head over to our FAQ page to hear more about the services HypeIndex offers.

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