Delta Airlines (NYSE:DAL) might look tempting at first glance. At around $32, DAL stock is trading at levels not seen since 2013. Just months ago, Delta was viewed as the darling of the U.S. airline industry. It had momentum. It avoided the 737 MAX grounding issues that caused headaches for many of its competitors. Business class customers were on the rise. Warren Buffet was buying up DAL shares.
What a difference a few months make. Delta stock is currently down 54% from its January 2019 highs. That’s a huge discount, but it’s just not worth the risk.
DAL gets an F-rating in my Portfolio Grader. As for Warren Buffet, he dumped all his airline stocks — including Delta — in May, selling them at a loss. Buffet said at the time:
I don’t know that three, four years from now people will fly as many passenger miles as they did last year.
That move was costly, but the way things are going for air travel, it was the right one. And it’s not just passenger flights that are a question mark. Lucrative business travel may actually be even more resistant to bouncing back.
Video Conferencing Poised to Kill Business Travel
Airlines are highly reliant on business travelers for profits. These passengers pay a premium for booking at the last minute, and their expense accounts cover extras like preferred seating and other perks. Delta had been making moves to lure more business passengers and it was paying off.
Last December, the company reported revenue from business travelers was increasing at double the rate of regular passengers.
Sounds great, but consider this quote:
As preferences and expectations of younger generations entering the workforce take hold, video conferencing will become the new normal over voice calls and will continue to replace costly cross-country or cross-globe travel for in-person meetings.
This is from a 2019 article published in Tech Republic, based on a survey of 1,300 business professionals across a broad range of industries.
Business class tickets may cost 70% more than an economy fare, so you can see why Delta has been pushing to boost that business. However, the convergence of technology, a generation that’s reluctant to drop everything for work, and a recognition of the cost of those business trips was already raising questions. Then the novel coronavirus poured gas on the fire.
The pandemic forced companies to cancel flying for business and adopt video conferencing instead. For many companies, videoconferencing has become the “new normal.”
When (and if) a coronavirus vaccine is found, how many of these companies are going to go back to paying a premium price for flights, plus hotel costs to send employees to meetings? Especially when they are looking to recover from the damage inflicted to their bottom line by the pandemic.
Obviously business travel is not going to end altogether. However, the writing is on the wall when it comes to casually booking a flight whenever a meeting is called.
Bottom Line on DAL Stock
There’s no avoiding the fact that airlines are in trouble. United Airlines (NASDAQ:UAL) is openly warning of “tough times” ahead. American Airlines (NYSE:AAL) investors were already faced with a 50% slump in the value of their shares over the past two years, before the coronavirus pandemic hit. Check my list of “7 Low-Rated Stocks to Sell Before They Drag You Down” and you’ll see a lot of airlines, including Delta.
Delta fell victim to the Great Recession, declaring Chapter 11 in 2005. After emerging from bankruptcy in 2007, DAL stock immediately dropped in value. It took another six years to regain 2007 levels. That was a result of dealing with the aftermath of a recession. This time around Delta has a recession — which could well turn into a full-blown depression — plus the lingering effects of a global pandemic. It’s going to be a tougher slog, and likely a longer one.
DAL stock is currently cheaper than it’s been since 2013, when it finally crawled its way out of the post-bankruptcy morass. As recently as December, analysts were singing the praises of Delta. It may well be the best of bunch among U.S. airlines, but it’s still part of a sector that’s in survival mode. That should be flashing red lights at potential investors.
Unless you are willing to roll the dice and have extraordinary patience, stay away from DAL.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
