Investors Should Take a Vacation From Delta Stock

Stocks to sell

Investors seem to have an appetite for airlines. And among those, Delta Airlines (NYSE:DAL) stock is viewed by many as the best of the bunch.

a Delta (DAL) plane flying through the clouds

Source: NextNewMedia / Shutterstock.com

That may be true, but Delta can control as many variables as it can, it still doesn’t mean it’s in control. And that has implications for DAL stock.

On the company’s July 14 conference call, Delta CEO Ed Bastian issued an update on passenger traffic that can’t be considered encouraging. According to Bastian, the company is forecasting traffic in the September quarter to be less than 20% to 25% from the same period last year. And this is in a backdrop where flights are at all-time low prices.

Business travel is looking equally bad, if not worse. Obviously, businesses are cutting back on all but the most essential of travel. But even if a business was so inclined, there are limited places for its employees to go. International routes remain virtually shut down.

Delta is Doing the Right Things

One of the most important things Delta is not doing is ignoring how customers feel about the novel coronavirus. Perception is reality and right now customers are afraid to fly. It’s good to know that Delta is going to be strictly enforcing its face covering policy. The company is also pledging to keep its middle seat open through October (and I suspect that may go longer).

Will Ashworth even brainstormed a scenario where Delta could leave the middle seat open indefinitely. Ashworth’s back-of-the-napkin suggests it’s not unreasonable that consumers would pay extra for that privilege.

And from a balance sheet standpoint, Delta is taking steps to slow down its cash burn. More than 40,000 employees have volunteered for voluntary unpaid leave.

The airline is doing many of the right things. But right now, doing the right things is only one part of the puzzle. And unfortunately, it’s not the part of the puzzle that carries the most weight.

Airlines Are Not in Control

Someday this pandemic will recede from the top of our national consciousness. When it does, I wonder how many will look back on our quixotic attempts to control the novel coronavirus for what they were. I’m not talking about social distancing or even face coverings. I’m simply talking about looking at a virus (and a somewhat airborne one at that) as something we could control.

The “if you do this, the virus will do that” mentality is amusing and frustrating. We should certainly do everything we can to stop the spread. But a novel virus isn’t waiting for our compliance to go away. That requires a vaccine. And short of a vaccine, it requires meaningful treatments to mitigate the worst symptoms.

And that brings me to the situation regarding Delta. All of the measures that Delta is taking to ensure its customers have a safe flying experience are important. But they’re predicated on the notion that customers will actually fly. Delta is asking customers a question that’s akin to Dorothy asking the Scarecrow, “What would you do with a brain if you did have one?”

In other words, it’s all well and good to ask customers what they would like their in-flight experience to look like if they had to travel. But does that mean they would travel? And if you believe the words of Delta’s own CEO, the answer to that is clearly no.

Should You Take a Flyer on DAL Stock?

There are going to be some airlines that come out of this pandemic better than others. And Delta may be one of those airlines. That’s good for the long-term outlook for DAL stock.

But in the short term, there’s no reason to believe that Delta, or any airline, is going to get the meaningful revenue they will need to see a significant increase in revenue or profits.

In the past, Delta investors were rewarded for their patience with a nice dividend. That’s on hold for the time being. And with a stock that’s fallen more than 25% since early June, it’s understandable, and probably prudent, to take a vacation from Delta.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.

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