Concierge, Sync, And Partnerships With YouTube And Uber Will Deepen Customer Loyalty In 2025

Key Takeaways

• Delta Air Lines forecasts record profitability for 2025 through revenue growth, margin expansion, and strategic capacity increases in premium cabins.
  
• Strategic partnerships and innovations, including with YouTube and Uber, aim to enhance customer experience and drive revenue growth.
  
• Employee pay hikes and profit-sharing risk squeezing net margins without matching operational efficiencies or revenue gains, amid competitive and geopolitical pressures impacting market share and costs.

Catalysts

Provides scheduled air transportation for passengers and cargo in the United States and internationally.

• Delta Air Lines anticipates 2025 to be its most financially successful year, driven by revenue growth and margin expansion, which should lead to record profitability. This suggests a positive outlook for net margins and earnings.
  
• The company expects to generate over $4 billion in free cash flow in 2025, which will facilitate further debt reduction and enhance their financial health. This implies an improvement in its balance sheet and potentially higher net margins.
  
• Delta plans to grow premium revenue through efficient capacity increases that focus on high-margin premium cabins within its most profitable hubs. This strategic growth approach is likely to boost revenue and net margins.
  
• New partnerships and innovations, such as Delta Concierge and enhanced offerings through Delta Sync, along with partnerships with YouTube and Uber, aim to elevate the customer experience and deepen loyalty, which may increase revenue through enhanced customer engagement.
  
• Delta is capitalizing on strong transatlantic demand and competitive capacity dynamics, implying potential revenue increase as U.S. travel to Europe becomes more attractive, supported by a favorable exchange rate.

Delta Air Lines Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Delta Air Lines's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.6% today to 7.7% in 3 years time.
• Analysts expect earnings to reach $5.2 billion (and earnings per share of $8.21) by about January 2028, up from $3.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $6.4 billion in earnings, and the most bearish expecting $2.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.2x on those 2028 earnings, down from 12.5x today. This future PE is lower than the current PE for the US Airlines industry at 12.5x.
• Analysts expect the number of shares outstanding to decline by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.85%, as per the Simply Wall St company report.

Delta Air Lines Future Earnings Per Share Growth

Risks

• The significant investment in employee pay increases and profit-sharing might pressure net margins if operational efficiencies or revenue enhancements do not keep pace with these expenses.
  
• The ongoing competitive pressures, especially in key domestic and international markets like Boston, could affect Delta's ability to maintain or grow market share, which might impact future revenue growth.
  
• The reliance on premium cabin growth for improved margins presents a risk if consumer preferences shift or if economic conditions limit customers' willingness to pay for premium services, potentially affecting revenue and earnings.
  
• Economic uncertainties, such as changes in consumer confidence post-elections or during periods of natural disasters, may impact demand for air travel, affecting revenue and profitability.
  
• Geopolitical risks and potential tariffs, particularly on aircraft originating from non-U.S. assembly lines, could increase costs or disrupt fleet expansion plans, adversely affecting operating margins and future cash flows.

Valuation

• The analysts have a consensus price target of $79.93 for Delta Air Lines based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $100.0, and the most bearish reporting a price target of just $44.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $67.6 billion, earnings will come to $5.2 billion, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 7.8%.
• Given the current share price of $67.65, the analyst's price target of $79.93 is 15.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.