Last Update 09 Feb 26
Fair value Increased 5.63%Delta Air Lines posts stellar unit economics but faces headwinds ahead
Atlanta's flag carrier, so to speak, remains the lode star in the US network carrier heaven, with its profitability the current envy of the industry:
Total revenue per available seat mile (TRASM) in Q4/25 stood at 21.94 cents, with total cost per available seat mile (CASM) at 19.93 cents, thus yielding a net profit of some 2 cents per available seat mile. This is simply oustanding, particularly for a legacy carrier.
As such, Delta shares have kept climbing, if a bit too steep even for results as stellar as these. Point is: As of now, the recovery from last year's "Liberation Day" shock is complete, with all the good news priced in. If recent signs of a deterioration of the underlying economic cycle in the US (that is, the economy apart from the warping effects of AI spending) are to solidify, the air will get thinner from here, for transport stocks in general and airlines in particular.
Hence, I prefer to remain with both feet on the ground, raising my fair value per share to some 63 dollars, leaving absolutely no room for valuation to inflate even further, I'm sorry to say. Far better for Delta shares to lower their altitude a bit from here, the steeper to climb later on. In financial parlance: Realise some of your profits and keep the rest of your position, but no more buying for the time being.
Update as of 10 April:
As written here in February, Delta is the leading carrier among the major US airlines and keeps that pole position even amidst the tariff-induced turmoil. True, the carrier had to jettison its record guidance for 2025 it had issued in January; still, Delta made a gross profit of roughly 1 cent per available seat mile in the traditionally weak winter quarter when other airlines struggle to turn any profit at all (my calculations from an adj. total revenue per seat mile (TRASM) of 18.97 cents and adj. cost per available seat mile (CASM incl. fuel) of 17.96 cents). Thus, the carrier made an almost exact landing at where I had estimated its margins a couple of weeks ago.
In terms of yield management, fleet management/modernisation and thus cost effectiveness, the guys from Atlanta continue to rule the roost. With any meaningful capacity expansion cancelled for the time being, DAL protects its average load factor and thus its yield which is outstanding for a legacy carrier in a cut-throat competition market such as air travel in the US, while roughly maintaining its market share.
Yet with its early warning about waning travel demand in March, my original assumptions in February re revenue growth and future PE had to be revised downwards from 4 to 2 per cent p.a. and 12, respectively, resulting in a fair value of about $53.50 a share. After DAL's quarterly numbers as of 9 April and the related poor visibility for the remainder of the year, I have to lower my anticipated PE further to 11, leading to a new fair value of about 49 bucks a share that still leaves some upside.
That said, there are two major threats to the company's prospects that shouldn't go unnoticed.
1) As with all major US airlines, its balance sheet is somewhat strained and always at risk of sudden, exogenous shocks such as another pandemic or a trade war in North America going rogue. Margins are so thin they simply cannot accomodate any major impact, so you got to be vigilant when investing in an airline even as big as this one.
2) The Trump administration's tariff wars threaten to weaken the US economy at least in the short to mid-term, thus reducing travel demand even more than anticipated in general and specifically on Atlantic routes that are among the most important cash cows of the industry.
That said, Delta ought to keep climbing relatively to its peers, even if on a less steep trajectory.
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The user PittTheYounger has a position in NYSE:DAL. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
