DAL - Embedded Expectations Analysis - 2021 08 09
Delta Air Lines, Inc. (DAL:USA) currently trades at a premium to UAFRS-based (Uniform) assets, with a 1.7x Uniform P/B. At these levels, the market is pricing in expectations for the firm to recover to pre-pandemic levels, but management may have concerns about travel demand, operating leverage, and passenger unit revenues.Specifically, management may have concerns about the sustainability of travel demand, progress towards vaccinating their employees, and their ability to become a carbon-neutral airline. In addition, they may lack confidence in their ability to sustain passenger unit revenues, continue American Express (AmEx) cash remuneration growth, and meet their operating leverage guidance. Moreover, they may be exaggerating the profitability of their Delta card and the cost savings of the pre-owned vintage airplanes added to their existing fleet. Also, they may have concerns about corporate travel volume expectations, the reopening of European countries to U.S. citizens, and the refund of fees for lackluster service in the airline industry.
Delta Air Lines provides scheduled air transportation for passengers and cargo. The company serves the Transatlantic, Transpacific and Latin America markets directly on the company and through joint ventures with airline partners. Internationally, the company has hubs and market presence in Amsterdam, London-Heathrow, Mexico City, Paris-Charles de Gaulle and Seoul-Incheon. These arrangements are commercial joint ventures that include joint sales and marketing coordination, co-location of airport facilities and other commercial cooperation arrangements. The company has other businesses arising from its airline operations, including providing maintenance and engineering support for its regional aircraft.
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