Delta Air Lines: Reasons to Buy for the Long Run

Delta Air Lines (DAL) has not been the best performer on the stock market this year as it is down around 7% in 2015. In addition, the company is steadily growing its financials. For example, last quarter, its revenue was up 0.8% year-over-year, along with non-GAAP net income of $1.64 billion, an increase of 14% from last year.

Delta Air improved its top line and bottom line despite foreign currency pressures and primarily due to its excellent operational performance and some key strategic partnerships executed during the quarter.

Also, Delta delivered $1.6 billion of free cash flow and $2.5 billion of non-GAAP operating cash flow during the quarter.  The airlines major leveraged this solid cash delivered during the quarter to employ approximately $1 billion into the business, mainly for buying new aircrafts.  Delta also returned $1.0 billion to its stakeholders by paying $72 million of dividends and repurchasing $925 million of shares, as also solidifying its balance sheet by lowering its non-GAAP net debt to $7.1 billion.

Improving partnerships to power growth

Delta recently strengthened its current partnership with GOL by purchasing approximately $56 million in preferred shares to offer larger rights to GOL.
Delta is believed to benefit from GOL's interest in SMILES which is GOL's publicly-traded loyalty program.  GOL and Delta have also decided to extend their premium commercial deal for operating flights between Brazil and the United States.

The impressive cash position on Delta’s balance sheet coupled with strategic partnership with GOL encourages the airlines major to fund its future growth operations while successfully executing on its commitment to deliver improved shareholder returns.

Delta is expected to be operating exceptionally better than the industry's finest operation till date. During the quarter, it generated 99.8% closure factor that include 43 days with nil mainline terminations. The company’s mainline on time rate got better by two points to 85.3 and much ahead of any of its national or global competitors in terms of performance.

Delta’s planned investments in GOL are believed to expand the former’s operations and transform it into a major domestic carrier in Brazil. In addition, significant investments of Delta in AeroMexico have significantly strengthened its foundation to become a key airliner in Latin America.

The notable mainline on time rate of Delta signifies the operational excellence of the key airliner. Moreover, strategic investments of Delta in AeroMexico and GOL are forecasted to significantly expand Delta’s market share and drive enhanced shareholder returns.

Delta is operating successfully with its partner Air France KLM that has enabled it to develop an extremely gainful Trans-Atlantic business along with its strategic investments in Virgin Atlantic, allowing it to continue to utilize that innovative model with fresh partners in several other key markets across the globe.

The airline major is expected to be presently benefiting from poor global fuel prices with significant margin growths. This poor fuel pricing environment is estimated to be sustainable over a longer time period and Delta expects to raise fuel prices with time.

The uniquely planned partnerships of Delta with Virgin Atlantic and Air France KLM are estimated to deliver sustainable long-term growth for the company through key market share expansions being further but temporarily supported by lower global fuel pricing environment.

Delta strategically signed an agreement with American Express and grew its paid first-class load factor to 57% on year-over-year basis and depending on 7% greater first-class seats.


Delta Air Lines is taking the right steps to improve its financial performance by strengthening partnerships. So, I think it will be prudent for investors to buy the stock for the long run.
Published on Sep 25, 2015
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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