Delta (NYSE:DAL) has a pulse again. DAL stock had plunged from $60 to $18 during the height of the March crash. In June, there was a short-lived run-up back to $40. For the past two months, however, Delta has unrelentingly trended downward, with shares slipping to under $25 by the end of August.
Last week, Delta and the other airlines finally got some air; DAL stock, in particular, popped almost 10%.
There are two apparent reasons for the turn of events. First up, the U.S. lifted an international travel advisory. From March onward, the U.S. State Department had urged Americans to avoid all unnecessary foreign travel.
Now it has reverted to a more case-specific advisory system, suggesting elevated caution toward travel to certain countries, while giving the green light for travel to places where Covid-19 is not widely prevalent.
The second reason Delta has started to rebound is that the federal government is discussing further aid to the airline industry. The last round of novel coronavirus relief granted airlines tens of billions of dollars conditional on the airlines not laying off their employees.
Those grants are set to expire shortly, and airlines are planning major staff reductions. It appears that the government may try to prevent those layoffs by giving out more wage-targeted grants.
Notice what’s missing here? There’s little actual sign that air traffic is meaningfully recovering, and that’s a major problem for the airline bull thesis.
Returning Traffic and DAL Stock
On its Q2 conference call in July, Delta’s management said that it isn’t seeing a big recovery in travel numbers. Traffic bottomed at 5% of normal in April and has now returned to 20-25% of typical levels.
That’s a welcome bump, but hardly anything to celebrate. And as management noted, even that recovery has been modest. In July, the traffic rebound stalled out as more states extended quarantine restrictions.
While coronavirus numbers are looking a little better in August, the disease is still widespread. As a result, we’re continuing to see many schools, universities, and other major institutions deferring normal operations out into 2021.
Delta reduced its planned capacity for August due to this. And, most concerning, in its conference call, Delta warned that “Business travel, which typically provides 50% of our revenue, has not yet returned in any meaningful way.”
More Government Aid
Airline stocks, including Delta, popped last week. On Wednesday, reports surfaced that an additional large airline bailout may be in the works. The idea, at least, has broad support, with as many as a dozen Republican senators potentially on board with the proposal.
It’s unclear what the timeline will be here. Congress’ efforts to pass additional support are officially stalled. Unemployment benefits have expired, and the parties are at an impasse.
On Saturday, President Trump signed executive orders unilaterally extending some key coronavirus relief. We’ll see if those orders stand, or if a court decides they are outside of Trump’s power. In any case, it seems Congress will likely come to an agreement on additional aid, even though it’s blocked for the time being.
There’s one other Delta-specific factor to mention here. It may seem crass to say, but location matters. Delta’s headquarters and key hub are located in Atlanta, Georgia. Georgia, as you may know, is one of the most-heavily contested states in this year’s upcoming presidential election.
Thus, politicians from both sides of the aisle may have additional interest in assisting the airline industry and Delta in particular. Tens of thousands of Delta employees will be voting this November, and they could be decisive in swinging a key battleground state.
DAL Stock Verdict
The best hope for the airline stocks in the near-term is another government aid package. As of this writing, these negotiations are a mess, and it’s too early to know definitely what will make the final cut. However, it seems there’s a good chance that airlines will get more aid specifically targeted at employee wages. There is bipartisan support for keeping aviation employees on the payroll.
That’s all well and good — it’s certainly a tangible positive for Delta stock as opposed to the alternative. But it’s no great sign for the company’s overall outlook that the best near-term catalyst is further government assistance.
It helps keeps Delta’s finances from sinking too far during the bust. But ultimately, for Delta stock to come anywhere close to pre-virus levels, it needs things to start to improve.
In particular, business travel needs to mount a recovery. For that, a vaccine or other medical solution must emerge. Until then, the best Delta’s shareholders can hope for is to just keep wading through this mess.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.
