Investment Thesis
Delta Air Lines (NYSE:DAL) delivered yet another stellar quarter and an even better outlook. Given the surge in demand seen in the travel sector and given the strong customer preference for its premium seats, in this article, I highlight how, despite surging fuel prices, DAL could actually be one of the surprise winners of the inflationary environment that we currently find ourselves in.
Premium Products on Domestic Routes Driving the Revenue Recovery
One of the primary reasons behind my thesis of why Delta Air Lines could thrive in this inflationary environment is how the company’s premium products on domestic routes are driving the revenue recovery. Domestic premium revenue has been almost fully restored compared to pre-pandemic levels and is likely to get a boost in the coming quarters as more and more Americans prefer the premium seating options.
For instance, most of the premium seats on Delta Air Lines flights flying in about ten days from New York to San Francisco are sold out whereas standard economy seats are still available. If one accounts for the fact that premium seats cost, on average, $300 more, then this gives us the first evidence that as things stand, its comfort and not price that seems to matter for Americans who want to fly. What is even more interesting is that on those flights from New York to San Francisco that take longer, it is the company’s highest seat class, Delta One, that was sold out. To put things in context, Delta One seats cost anywhere between $3,500 and $4,500.
According to official data, airline fares are on average, up 24% year-over-year. Clearly, this has had no impact on either the passenger demand or on the passengers’ preferences for comfort. Delta Air Lines, therefore, can take full advantage of this newly developed consumer taste for comfort and enjoy the kind of pricing power that should help the company to not just offset the rising fuel costs but also…