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This is set to be a record-breaking year for air travel. Some 4.7bn people are expected to take to the skies in 2024, according to the International Air Transport Association. That is 200mn more than the pre-pandemic high set in 2019.
Recovery in business travel is underpinning demand. So is consumer desire to make up for missed trips. This should be good news for airlines. But problems at Boeing mean that not every carrier will benefit equally.
Regulators have placed a cap on Boeing’s production capacity following the harrowing mid-air panel blowout on an Alaska Airlines flight in January. This in turn means delivery delays. Some airlines will not have enough planes to meet demand for the peak summer travel season.
Delta Air Lines is the notable outlier. It is the top performing US airline stock over the past year. Among big US carriers, it appears to be the least affected by Boeing’s production and delivery issues.
The Atlanta-based airline does not operate any Boeing 737 Max jets. Its order of new 737 Max 10 jets, originally slated to be delivered in 2025, is expected to be delayed by a year or two. But Delta says that deliveries from Airbus will fill the gap. By contrast, rival United Airlines is asking its pilots to take unpaid time off because of the plane shortage.
For Delta, the result is record first-quarter revenues and forecasts for another strong showing for the second quarter. It plans to expand flying capacity by 6 to 7 per cent this quarter as it reaps the benefit of a focus on international travel and the push to sell more premium-cabin seats.
Delta’s share price, up 38 per cent over the past 12 months, has vastly outperformed its peers.
Rising fuel and maintenance costs could present a hurdle to further growth. But there are good reasons to believe Delta’s run can continue. Chief among them: the airline’s long-standing credit card deal with American Express. This is a lucrative but often overlooked side business that should help to insulate the company against some of the aforementioned cyclical problems. The partnership generated $6.8bn in revenue for Delta last year.
That worked out to nearly 12 per cent of group total. On a profit level, the card deal carries even more weight. Lex calculations suggest the programme could have accounted for as much as 70 per cent of Delta’s net income in 2023. The heft and breadth of this Amex relationship should ensure Delta’s share price continues its ascendancy.
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