As airport traffic continues to recover, airline stocks are popping back up again on investors’ radars. On that list should be Delta Air Lines (NYSE:DAL), one of the higher quality companies in the industry. That said, Delta airlines stock is not a quick trade for bulls — it’s a long-term hold as the industry forges ahead.
When we look at the stock market, it’s easy to think that everything is okay. After all, stocks went on to hit new all-time highs just a few months after plunging with the early pandemic selloff.
However, just because the stock market has come roaring back to life doesn’t mean the economy has. And while the economy has done much better than analysts and economists thought it would, it’s still not fully healed.
Nowhere is that more evident than in the airline industry.
Delta Airlines Stock: Is Traffic Sustainable?
Despite the rebound in stocks, restaurants are still operating at limited capacities, travel is still down and the labor market has still not fully recovered.
Additionally, the United States has now seen back-to-back days of record Covid-19 case numbers. According to The New York Times, a total of 103,657 new cases were reported on Nov. 8, with an average of 111,175 cases a day over the past week.
Of course, this will ultimately have a negative impact on airline traffic. Yet the figures have been improving. In mid-October, TSA logged its first day of 1 million passengers since the pandemic began.
So the question becomes this: how sustainable is that traffic growth? And with so many new cases, how long will it take for things to get back to normal?
For comparison, TSA had surpassed the 1 million number on Oct. 18 — a year ago, on the same date, TSA saw 2.6 million passengers. Clearly then, the industry still has a ways to go.
Breaking Down DAL Stock
We cannot take the industry’s pulse alone, though, without looking directly at Delta Airlines stock, too.
Almost a week before that strong TSA figure, the company reported earnings. Since then, shares have been relatively flat, down just 8%. For the types of numbers investors have seen this year, that’s actually pretty good performance from the stock.
Additionally, the company reported a loss of $3.30 per share or $2.6 billion. However, that excludes $4 billion in Covid-19 expenses. Naturally, the year-over-year comparisons are devastating, to no surprise.
On the flip side, though, the company is improving notably from the prior quarter. Allow me to borrow a chart from a previous InvestorPlace article that shows the sequential improvements in Q3 from Q2:
| Metric | Q2 | Q3 |
| Adjusted Revenue Decline | -91% | -79% |
| Adjusted Loss | $3.9 billion | $2.6 billion |
| Capacity Reduction | 85% | 63% |
| Average Cash Burn | $43 million | $24 million |
| Cash Burn in Last Month of QTR. | $27 million | $18 million |
| Liquidity | $15.7 billion | $21.6 billion |
Quarter-over-quarter cash burn and losses are down. Capacity is also up and liquidity has improved. At the Q3 conference call, Delta President Glen Hauenstein added, “net cash sales [are] improving from $5 million to $10 million per day at the beginning of the quarter to approximately $25 million to $30 million per day at the end of the quarter.”
Admittedly, there are still plenty of issues with Delta Airlines stock. However, it’s also clear that the situation is not a total loss. But investors need to continue seeing that improvement moving forward, if the stock hopes to gain any traction again.
Bottom Line
Obviously — with all of the pain in the airline industry right now — Delta’s not reporting the best numbers. The current situation is bleak, putting investors in a tough spot.
However, I think we can all agree that traveling by plane isn’t going anywhere. And that’s whether Covid-19 takes a year to pass or five years to pass. That’s whether we have a vaccine next week or two years from now.
As a result, traders may be wise to start buying the strongest names in the airline industry with the best financials before the companies improve. Those companies should make it to see brighter days. Delta Airlines stock is one of those names that is fit for the long term.
But remember — this isn’t a multi-quarter story now, it’s a multi-year story.
As for the share price, Delta has been consolidating in a tighter and tighter range since June. Now contending with its 200-day moving average, we’re seeing an interesting development. Shares aren’t going down despite the uptick in novel coronavirus cases as well as the company’s earnings report.
That’s quite bullish. And if we can get some rotation here, Delta airlines stock could start to take off. Specifically, a move over the September high near $35 could put the June high in play near $37. Above that, and a gap fill is possible up toward $42.50.
On the downside, a close below the $28 to $27.50 area would be a concern in the short term.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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