- Delta’s long-term strategy focuses on offering premium service and building strong partnerships.
- Delta is using a conservative approach to debt to support long-term growth.
- Delta plans annual passenger capacity growth of 3-4%, mainly by adding more premium seats.
Delta Air Lines, Inc (NYSE:DAL), has been refining its strategy for over a decade, focusing on its strengths like premium service and strong partnerships, supported by significant investments over the years.
Delta Air Lines, based in Atlanta, Georgia, provides air transportation for passengers and cargo in the United States and internationally. Delta and its regional affiliates, known as Delta Connection, offer service to more than 300 destinations in over 50 countries, operating more than 15,000 daily flights.
Company Financials
- Conservative Debt Strategy: Delta is being cautious with its debt, likely influenced by the Covid-19 pandemic. Instead of focusing on short-term gains from stock buybacks, Delta is reducing its debt. This should boost earnings per share and improve the company’s valuation over time, making it more attractive to long-term investors.
- Capital Allocation: Delta plans to have $40 billion in assets that are not tied to any debt within the next three years, which could allow them to raise $30 billion if needed. The goal is to reduce gross debt from $26 billion to around $12 billion, with an average of $2 billion in annual debt repayments. Delta did not dilute its shareholders to raise capital during tough times. If necessary, Delta can increase its debt and buy back shares if lower debt levels do not yield the expected benefits.
Company Outlook
- Capacity Growth: Delta expects to grow its capacity by 3-4% annually, with 85% of 2025 growth coming from premium seats. This strategy should help improve trends in the main cabin (standard economy class) and expand domestic industry margins. Delta expects premium revenue to exceed main cabin revenue by 2027.
- Fleet Management: Delta plans to add 40-50 new aircraft and retire 20-30 older ones each year, improving fuel efficiency by 1-2 percentage points.
- Industry Trend: The strong demand for international travel post-Covid, with growth across all generations (Baby Boomers, Gen X, Millennials, and Gen Z), is expected to support Delta’s profit margins.
Company Strengths
- Strong Partnerships: Delta has a strong partnership with American Express (AmEx), which accounts for 10% of AmEx’s billings and 20% of its loans. Spending on Delta co-branded cards is significant, equivalent to about 1% of the US GDP. This partnership enhances Delta’s customer experience through shared assets, including lounges and technology.
- Board with Diverse Experiences: Delta’s Board comprises members with extensive experience in various sectors such as consumer goods, international business, marketing, and the oil industry. Safety, security, and talent development are key priorities for the Board.
Investors can consider Delta’s strong long-term strategy, conservative debt management, and growth outlook when making investment decisions. However, they should also be aware of potential risks such as economic downturns, fluctuating fuel prices, and changes in consumer travel behaviour that could impact Delta’s performance.
Disclaimer: ProsperUs Manager of Content, Hailey Chung, does not own shares of the company.
Reference
CGSI – Raymond James | Delta Air Lines | Nov 21, 2024