Opinions on Delta Air Lines (NYSE:DAL) come down to only one thing. How do you feel about a possible second wave of the novel coronavirus? If you watch Delta stock, the answer seems to be that investors are not that concerned. The stock is up over 40% since collapsing in March. This is despite that the stock posted poor earnings in April and the numbers are unlikely to be better when the company reports in July.
The simple answer is that air traffic trends are improving, but only if you count improvement as being not a complete disaster. As Luke Lango cited in a recent InvestorPlace article, total traveler throughput on a year-over-year basis is still down 79% as of mid-June.
I’m optimistic by nature. So, I want to believe the narrative that by the fourth quarter, airline traffic will be measurably increasing. But I’m struggling to do that. The opening of a recent article by Dana Blankenhorn made me think. Blankenhorn wrote this simple opening to his article about Delta stock:
I’m not flying until this pandemic is over. Are you? If you aren’t, then why are you buying airline stocks?
And I had to ask myself the question, would I fly right now? I admit I honestly don’t know. But I believe that my getting from point A to point B and back without contracting the virus is more a question of being lucky.
The Virus Is Everywhere and Nowhere
An article in The Atlantic titled America’s Patchwork Pandemic is Fraying Even Further, was one of the more sobering articles I’ve read since the novel coronavirus was labeled a global health emergency. I encourage you to read it, but my takeaway is that it’s very difficult to get your mind around a virus that’s everywhere and nowhere at the same time.
By “everywhere and nowhere,” I mean the virus can be transmitted by people who don’t have symptoms. And that means that no matter how much testing we do, there’s no way to definitively know if someone is carrying the virus.
If you think I’m being too dramatic, consider how much the stock market rose on news that the World Health Organization said that it was very unlikely that asymptomatic people could transmit the virus. This was a statement that the WHO quickly revised.
The possibility of asymptomatic transmission is the entire ballgame. It’s particularly true when you consider how difficult it can be to keep social distancing on an airplane.
But my concern for Delta stock is not the economy crashing in a second wave. I’m more concerned about having a middling recovery in which people are hesitant to fly, not out of fear, but because they become concerned about other things.
What if they fly to another state and are forced to quarantine for 14 days? How can they make vacation plans? What if they come home and find out they have to quarantine for two weeks? What does that do to their job?
And so, staying within their state borders may be a better alternative than flying to another state.
There Is a Path for Delta Stock, But…
I apologize if I’ve made you angry or depressed. There is a path for Delta stock. Mark Hake wrote a well-reasoned argument that you can read here. Lango’s article also makes a compelling case for the stock based on air traffic increasing.
And every argument makes sense, if I allow myself to believe that fundamentals will win the day. But I don’t think that air traffic will increase in a meaningful way before there is a vaccine or a known treatment for the worst symptoms of Covid-19. That won’t happen until the end of the year at best.
Delta may do everything right. But right now, the company’s best may not be good enough. This is truly an invisible enemy. And it might live in our heads as much as in our bodies. Delta will be around even if, as Blankenhorn writes, the company undergoes another bankruptcy. But it’s likely to take a long time to get there. I hope that I’m wrong.
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.