The airline industry was a beleaguered industry throughout the COVID-19 pandemic. Pandemic restrictions kept travel on hold, resulting in airplanes being grounded. However, the airline industry seems to be on the path to recovery.
Using the TipRanks stock screener, let us look at Delta Airlines (NYSE: DAL), an airline stock that is on a path to recovery.
Last week, on Delta's Capital Markets Day, management unveiled a path on which Delta plans to expand its platform and create value over the long term.
Let us look at some of the steps taken by Delta, as explained at its Capital Markets Day event, and learn whether Deutsche Bank analyst Michael Linenberg approves of them.
Operating Excellence
The company’s management highlighted the fact that Delta made it through the COVID-19 pandemic without letting go of a single employee.
Edward Herman Bastian, CEO and Director, Delta Airlines commented, “It's [Delta Airlines] a company that made it through the pandemic without furloughing a single employee. There's only two companies in the world – two airlines in the world that could say that. I think Southwest can say that and I think Delta can say that.”
Analyst Linenberg also pointed out that the company’s operational excellence was evident “in the company's 142 'brand perfect' days through November 2021, which was at the same level of 2019's operational performance.”
DAL defines Brand Perfect days “as those days when there are no cancellations across Delta's mainline and regional operations.”
The Brand Perfect days also resulted in higher customer satisfaction, as indicated by its Net Promoter Score (NPS), which increased by 10 points from 2019 to 2021.
Delta’s Fleet Simplification Program
The analyst also approved of DAL’s fleet simplification program, as the company indicated on its Capital Markets Day that it had taken out 200 airplanes from its fleet but is continuing to invest in upgauging its narrowbodies. Upgauging is a term used in the industry to mean increasing carrying capacity, by exchanging smaller planes for larger ones, and by adding seats to their existing jets.
What’s more, the company’s management also commented that Delta had dropped its fleet age by two years over the course of the pandemic.
But will this revamped fleet take off? Yes, said Delta Airlines’ management.
Uptake in Consumer Demand
Bastian commented that while consumer demand has already been restored 100%, when it comes to business and international consumers, “Business in terms of traffic levels is about 60% recovered, as we sit today, as we exit the year. International consumer, 60% to 65%, and business international, about 25%. ”
When it comes to Delta’s premium products, which include Delta Comfort+, Delta One, Delta Premium Select, and First Class, the airlines expect 36% of their revenues to come from premium products.
Analyst Linenberg believes that “Delta’s focus on premium products will continue to widen its competitive moat. That said, Delta should continue to be a meaningful player at the lower end of the fare spectrum as today's first-time flyers are tomorrow's corporate and premium customers.”
The analyst is also positive about the company’s deleveraging efforts, as it aims to reduce its net debt down to $15 billion by 2024.
As a result, Linenberg reiterated a Buy and a price target of $55 (50.4% upside) on the stock.
When it comes to the analyst consensus on the stock, other Wall Street analysts are cautiously optimistic, with a Moderate Buy consensus rating. This rating is based on 9 Buys and 5 Holds. The average Delta Airlines stock price prediction of $52.17 implies upside potential of 42.7% to current levels.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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