Delta Air Lines Won’t Escape Turbulence Just Through Vaccines

With the bottom-line thinking that has become indoctrinated among Wall Street giants, it’s a shock to the system when companies adopt a customer-first approach. But that’s exactly what Delta Air Lines (NYSE:DAL) did, becoming one of the first to block the middle seat and committing to this offer until March 31, 2021. Although a much-welcome gesture, it may not help DAL stock.

Delta airlines aircraft interior full of passengers
Source: Cassiohabib /

Of course, there’s the element of what it would cost Delta to go so deeply against the grain. After all, the company is the only U.S. carrier that will block central seating through spring. Others, like American Airlines (NASDAQ:AAL) and United (NASDAQ:UAL) haven’t taken that step.

Therefore, let me be clear – my hesitation on DAL stock has nothing to do with the underlying management team’s consumer-friendly initiative. Really, good on them. If I need to fly somewhere – hopefully not – I will choose Delta.

But here’s the thing. No matter what good will Delta generated, the novel coronavirus pandemic has in many ways turned into an American endemic. While other nations are suffering a second wave, our charts brought to you by the Centers for Disease Control and Prevention seem to suggest that we’re on a third wave. Further, with hospitals filling to capacity, this onslaught could be the deadliest.

So, forget what the real data suggests. People intuitively know to avoid high-contact situations if at all possible. Not only that, some startling research confirms our worst fear: a Covid-19 infected person can exponentially spread the disease to others in an airplane. Should word get out, this could damage demand for DAL stock.

According to a study republished by the CDC, “Among the 217 passengers and crew members on a direct flight from London to Hanoi in early March 2020, we identified a cluster of 16 laboratory-confirmed COVID-19 cases. In-depth epidemiologic investigations strongly suggest that 1 symptomatic passenger (case 1) transmitted SARS-CoV-2 infection during the flight to at least 12 other passengers in business class (probable secondary cases).”

Remember when the government and the media initially told us masks aren’t recommended? The above study will not go over so well.

Follow Common Sense or the Math for DAL Stock

While 2020 will be forever marked as the year of the novel coronavirus, it was also the year of lies, as in straight up horse manure. Basically, influential people and institutions attempted to disconnect people from their intuition early in this crisis. The flip-flopping on masks is one example. That air travel is safe – I’m talking to you, JetBlue (NASDAQ:JBLU) – could very well be another.

If you don’t believe the aforementioned scientific research, why not try MIT Medical? According to its analysis, “Even with appropriate precautions, a relatively short domestic flight still carries moderate risks and should not be undertaken lightly.” Really? I never would have guessed.

Seriously, though, this demonstrates the awkward situation that DAL stock finds itself. On one hand, the underlying company deserves more credit for its seat-blocking commitment. But on the other hand, abstinence is the safest form of air travel.

No wonder why DAL stock and its ilk soared following encouraging developments in the Covid-19 vaccine race. Unfortunately, we’re still a long way from inoculating enough people – through their consent, of course – to achieve herd immunity. Plus, if people are uncooperative (a very real scenario), the pain for airliners can last longer than expected.

DAL stock vs. Air passenger volume
Click to Enlarge
Source: Chart by Josh Enomoto

More critically, despite contextually strong Thanksgiving travel demand, the overall impact to post-coronavirus travel trends has been negligible. Generally speaking, air passenger volume has steadily picked up since April. But total air travel demand in November actually declined slightly from October.

Yes, October has one more day than November, I get that. But even accounting for that extra day in either the front or back end, the impact to the broader trajectory is negligible. Passenger volume has flatlined, which is a normal response as Covid-19 cases blew up.

But at the same time, the average DAL stock price increased. That tells me that Delta’s November rally is overcooked relative to the fundamentals. It’s rising because of vaccine news, which is still a complicated scenario. Outside of vaccines, the core fundamentals – passenger volume – doesn’t justify Delta’s rally.

Secure Your Profits if You’re in the Black

If you can believe it, I’m bored of always finding the negative in sectors like the airline or oil industry. But in these cases, I’m just going with what the hard numbers are telling me. If consumer confidence was truly strong, then I’d feel confident in DAL stock.

Instead, shares are rising while passenger volume is flat. Further, December’s data is on the same trajectory as November’s tally. If this continues to play out, that means we’ll end the fourth quarter with very little growth, if any. Perhaps December might be awfully disappointing, given the rising infections.

Either way, the circumstances don’t look good for DAL stock. In this case, you should use your common sense: people are getting sick, which completely disincentivizes consumer transportation plays like Delta Air Lines.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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