Why Delta still flies above JetBlue: Analyst

Citi airlines analyst Steve Trent joins Market Domination for a special edition of Good Buy or Goodbye to take a look at his previous call and evaluate how it holds up.

Previously, Trent picked Delta (DAL) as his “good buy” and advised investors to say “goodbye” to JetBlue (JBLU). Trent maintains this position, citing Delta’s economic activity per available seat mile and brand strength. He reiterates his warning about JetBlue, pointing to weak revenue verticals, a weak base case for M&A activity, and the lack of a good path back to sustainable margins.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Nicholas Jacobino

Video Transcript

It’s a big, noisy universe of socks out there.

Welcome to goodbye or goodbye.

Our goal.

To help cut through that noise to navigate the best moves for your portfolio as the summer season is upon us for navigating a turbulent few months for the airline industry with a goodbye or goodbye score card.

Yes, for the first time ever, we’re taking a look back at a call that a guest has made to see how it’s done.

And so let me bring in Steve Trent, City Airlines analyst.

Thanks for being here.

So at the beginning of the you, your good by the So you liked was Delta and you said to avoid JetBlue.

So big reveal.

Let’s see how you did pretty good.

Delta is up about 25% year to date, and JetBlue has fallen about 1% or so for the year to date, including today.

So your call worked out pretty well, but you’re sticking with it.

You say this is still a good call to have.

And you still like Delta here, right?

Yes, absolutely.

I think we’re in the early early innings of this.

OK, so let’s go through why you talked about wallet share gains for network airlines.

So what do you mean?

My network network versus discount, I assume?

Absolutely.

So if you bifurcate the US Airlines between the full service carriers on Delta Side and the discount airlines that JetBlue is on the other side of the fence, you’ve actually seen a big pickup pre pandemic.

If you look at the earnings wallet share, the network airlines had roughly 75% of the pie.

Uh, on our numbers, 2024 2025.

They have closer to 92 93% of the party.

So I’ve seen these post panem shifts in work.

Most people are no longer in the office five days a week, so that fly out Sunday night, fly home Thursday night.

It’s not totally gone, but it’s diminished.

And I think that shift has led to hybrid travel.

Uh, which has really benefited the network airlines.

Interesting And and also what we have seen is maybe more economic per available seat miles.

Story continues

So ring more profit out of those out of those seats at Delta.

How are they doing that?

Absolutely.

So you know, the first issue you have not only are they taking higher share?

Uh, but we also continue to have a paucity of capacity on a per capita basis.

So if we go back to 2019, there was a little less than $24 of economic activity per available seat mile in the US domestic market.

Uh, last year that was above $29.

This year we think it’s going to be a above $30.

These global aerospace supply chain issues are not going away.

So at the same time, network airlines are picking up more wallet share The wallet opportunity itself is getting bigger from that dearth of capacity we have out there, and they’re going to be able to price more effectively that scarce capacity than a discounter line.

It sounds like that means prices are going up for us, OK, and then finally there are the co brand cards that they have and the money that Delta gets from that, and that’s going well.

I guess it’s going extremely well, and I would say Delta really has the best brand of a US airline, and they’ve spent years developing that very good brand, and that’s everything from being the very last airline to unblock the middle seat at the height of the pandemic, uh, to the only major that did not dilute its equity holders, uh, with convertible debt or equity offerings during the pandemic, with a very small number of warrants that got issued to the Treasury Department because of the cares act.

So when we think about that counter party profile, uh, a big global, uh, loyalty programme, uh, they’re making very good revenue off of that.

So we think that trend is going to continue, uh, as well as be a really important distinguishing factor between the network and the discount airlines.

So let’s talk about what could potentially go wrong for a Delta.

We could see a regulatory crackdown.

What would that look like?

And what effect would that have?

Sure, absolutely.

So you’ve seen little wisp of this already.

Slightly trickier rules for the airlines in terms of being required to pay refunds to consumers after there’s a certain number of hours of delays, stricter rules on compensation for checked bags?

Does that get more intense for the group?

I think it’s hard to say, but do we get something more extreme?

Uh, that will limit, uh, co branded card activity limit loyalty, programme activity.

I’m not saying it’s going to happen, but this is kind of the wild card one would worry about in this case.

Got you.

All right.

So let’s get to JetBlue now.

And your goodbye.

The stock you don’t like as we mentioned, the stock is not done terribly well here.

And you say it doesn’t have its revenue.

Vertical thriving.

What does that mean?

Yeah, absolutely.

So when we think about that fantastic loyalty programme you have with, uh, a delta or or a United Airlines, for example, uh, it’s really tough for the discount airlines, uh, to have that same level of punch.

So a large financial institution as the partner loves the big programmes for the relatively wealthy consumers they can cross sell all day long.

You know, at this town airline doesn’t have that.

It doesn’t have the global popularity.

Uh, JetBlue has a very good mint product.

Uh, and they do some of that transatlantic, which is great, but that’s a very small piece of the pie.

So there’s no trans specific.

They do not have a robust co branded card programme like the others do.

They’re largely domestic.

You know, Mexican beaches.

There’s over capacity.

Now, Caribbean.

There’s some overcapacity.

So they’re in a tough spot.

Got you.

And then, of course, there’s the the big event that didn’t happen with the company, right?

They were gonna, um, get together, Um, with the sprint, Uh, spirit.

Excuse me?

That fell apart.

So now what is kind of the question?

Absolutely.

And it’s a tough one.

So if you’re JetBlue in that case, you wanted scale.

You wanted to jump to be the number five position, uh, in the group.

And it also sort of reminds me of what we saw years ago with Southwest Airlines acquiring Airtran.

Southwest needed the pilots, and they needed the equipment.

And they got both, uh, JetBlue.

Seemed like it wanted to do the same.

Uh, the regulator said no.

Uh, so we have the pilot and equipment issue.

Uh, we have the Garret TOBA fan engine issue potentially, um, making some hiccups here in in in capacity growth.

Um, so it kind of begs the question strategically.

What do they do?

I?

I think it’s a tough thing to make heads or tails of, uh, after that merger got blocked Yeah, And then that leads to the idea that there’s not a way back to sustainable margins.

When you have those kinds of headwinds, it’s hard.

So getting back as well to what I mentioned on the network airlines having that really big post pandemic pickup and wallet share, you know, largely to Network airlines.

Um, if you’re JetBlue, uh, on our numbers, it doesn’t look like an easy path to get back to sustainable margins and earnings.

Uh, when you’re in that situation.

So there has to be some kind, Of course.

Correct.

Um, you know, on your verticals or on your seat Mark cross profile and is not sure how either is gonna get done.

Got you.

And then what could go right for JetBlue?

Will they have new management so they could come up with a plan, maybe to address some of these issues?

Absolutely.

Look, they have a new CEO.

She’s terrific.

She’s gonna do her thing.

Uh, strategically.

Are there surprises that we can see from them?

Absolutely.

You’ve got some schedule, uh, 13 D filings out there.

Some new people on their board.

Uh, do they have some wild cards to show the market uh, I don’t necessarily see any, but that’s always something that you’ve got to keep your eyes on.

All right.

And any position in either of these stocks?

Me neither.

Ok, all right.

All right.

Well, you’re sticking with it here telling people by Delta and avoid JetBlue.

That’s something that you’ve stuck with since January.

So thanks for coming back, Steve.

Good to see you again.

Appreciate it.

Thank you for watching goodbye or goodbye.

Will we bring you new episodes three times a week at 3:30 p.m. eastern.