In This Article:
Key Points
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The airline industry has become much more disciplined about reducing capacity where and when it's necessary.
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Premium, loyalty, and co-branded credit card revenue have diversified Delta's income streams.
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Diversifying revenue streams makes the airline business more resilient during downturns.
It's no secret that President Donald Trump's trade war is negatively impacting airlines, at least in the near term, but that shouldn't detract from how attractive stocks like Delta Air Lines (NYSE: DAL) are over the long term.
The key reason for this, and why this stock in particular could appreciate substantially in the coming years, comes down to one word: resiliency.
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Responding responsibly
Running an airline is a cyclical business; it always has been and always will be. When the economy is booming, leisure travelers and businesses feel comfortable spending on airline tickets, but when growth slows, they pull back. Moreover, the industry was traditionally susceptible to changes in demand, as airlines have stubbornly stuck to their routes and flight volumes as they waited for the next upturn to arrive.
However, they are much more disciplined now, and respond to dips in demand and periods of overcapacity by reducing unnecessary routes and flights, as witnessed last year when there was overcapacity during the summer.
In that vein, Delta and its most similar peer, United Airlines, have already said they are paring back their capacity growth plans for 2025 in response to the slowdown in travel caused by tariff-related uncertainty and the trade war.
This reflects an industry less financially sensitive to changes in demand, thanks to its agility in responding to supply-side changes.
Diversifying revenue streams
Airlines like Delta and United have also taken giant steps to diversify their revenue streams beyond main cabin flight options. Those efforts have paid off, as Delta's first-quarter earnings show; while main cabin passenger revenue declined 1% year over year, to $5.4 billion, its premium products revenue rose 7% to $4.7 billion. Its loyalty-related revenue rose 11% to $940 million, indicating the strength of its SkyMiles program and the appeal of its co-branded credit cards with American Express.
While the environment could worsen and demand on its routes could slide further, Delta has demonstrated its resiliency and adaptability, which should reduce its downside risk. Meanwhile, its valuation suggests plenty of long-term upside for the stock.