With its share of the $58 million that the CARES Act has set aside for the airline industry, Delta Air Lines (NYSE:DAL) should be able to make it to a post-pandemic future. But with many airline stocks, including DAL stock, trading at multi-year lows, some investors are thinking of jumping back in.
Airline stocks are down 61% in the past three months — evident in the performance of the U.S. Global Jets ETF (NYSEArca:JETS), which has Delta as its third-largest name in the 34-stock exchange-traded fund’s portfolio.
Yet when you look at the 12-month price target for DAL stock, there’s even more of a boost. The seven analysts that have issued a 12-month price target since the start of the pandemic set a target of $38. That would be almost a 100% increase from the stock’s current price.
Could you do it? Sure. Should you do it? Probably not. And there’s a simple reason why: Investors hate uncertainty and there’s way too much of that surrounding DAL stock.
Airlines are Grounded by the Fog of War
Delta is wisely planning for the worst and hoping for the best. In fact, the airline is preparing for a full year of virtually no revenue. But the problem is that right now, anybody who forecasts what the worst, or best, case is for the airlines is lying. As the world moves in baby steps from flattening the curve to a new normal, the future of flying is unclear.
However, two things seem certain. It’s going to take time. And it’s going to be expensive.
A recent article in Forbes outlined the future of air travel. Let’s start with the entire process of checking in for flights, which some calculate that it could take up to four hours and involving social distancing, sanitizing of passengers and luggage, creating wider spaces for various lines and boarding.
Nine out of 10 experts expect slower turnarounds between flights due to the need of thorough cleaning of cabins and following of hygiene measures at airports.
Change for the Better?
But I think that any changes the airlines make in the next year are just a place holder to get back to any semblance of normal. I think the future of air travel will be changed forever. Just as the pandemic has forced many businesses to make the investment in work-from-home technology, this health crisis will force airlines to make changes that they have probably only gamed out in worst-case exercises.
This may create an opportunity for Delta and other major carriers. The airline industry has faced a fundamental problem since before 9/11. Passengers want cheap flights, but they don’t want crowded flights.
In the new normal, passengers should have plenty of personal space. In fact I believe the interior of planes will have to be rethought with social distancing in mind. The pandemic may very well create a new, exciting normal. But it will come at a price. And that’s not good news if you own shares of DAL stock, particularly if you were hoping to collect a dividend. Those days may be gone for a long time.
Is Delta Too Big To Fail?
The phrase “too big to fail” was coined at the onset of the financial crisis when banks were considered too important to the nation’s financial system to be allowed to become insolvent. As with many phrases, we’ve moved the goalposts on what it means more than a few times. However, in the context of the airline industry, I think it may be an apt description.
Boeing (NYSE:BA) CEO David Calhoun recently gave an interview in he opined that a major U.S. airline will “most likely” go bankrupt. Calhoun did not say which carrier that might be (and I’m not suggesting that Delta is that airline).
However, the herculean task facing the airline industry can be found in another part of Calhoun’s interview. That was when he predicted that the airline industry might be back to 50% of its business by the end of the year.
However, that would be an improvement considering that airline travel is down by 90% from the same period of time a year ago. And according to Airlines for America, carriers are still losing $350 million to $400 million dollars a day.
DAL Stock Should be Part of the New Normal
I believe we are about to see a period of disruption in the airline industry unlike anything that’s been seen before. There will be innovation and consolidation. There will likely be bankruptcies. Like the time after 9/11, flying is going to become even less convenient.
But in the end, the airlines that make it to whatever the new normal looks like will have a breakthrough opportunity. I still love to travel. There’s a part of me that has always been amazed by the speed at which I can get from point A to point B.
But as much as I’m rooting for the airlines to pull through this and I’m excited to see what the new normal has in store, until I see revenue, it’s a lousy time to be a DAL stock holder.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
