Delta Air, American Airlines rise as travel outlook improves

Delta Air Lines returned to profitability in March and forecast better adjusted operating margin, signaling the worst may be over for the airline industry and the sector could now be a buy. Here’s why.

Delta Air Lines shares climbed after the company signaled continued travel demand recovery, boosting the outlook across the industry. American Airlines shares surged 11%, wiping this year’s losses. Delta CEO Ed Bastian said travel demand rebounded as omicron faded, helping the company report adjusted operating margin of almost 10% and returning the company to profitability in the month of March.
That’s a turnaround for an industry battered by the global pandemic, and could be good for airline investors. Business travel demand improved and airlines were able to increase fares as omicron faded, offices reopened and restrictions were lifted.

Analysts see an upside

All the 18 analysts tracked by Yahoo Finance rate Delta a strong buy with an average target price of $49.88. That represents further upside for shares that are already up 6.3% to $41.06 as of 3.:55 p.m New York time Wednesday. Southwest Airlines rallied 7.5% while Jetblue Airways advanced 4.4%.

Here are a few things to consider if you think it’s time to add airline stocks into your portfolio:
Delta forecast a 12% to 14% adjusted operating margin and strong free cash flow in the June quarter. A rebound in travel demand pared the company’s adjusted loss per share to $1.23 in the first quarter, according to its press release.
“In the June quarter, we are successfully recapturing higher fuel prices and expect our revenue recovery to accelerate to 93% to 97% with unit revenue up double digits compared to 2019,” Delta President Glen Hauenstein said. Unit revenue exceeded 2019 levels in March month for the first time in two years, the company said.
The company generated free cash flow, continued to pay down debt and finished the quarter with almost $13 billion in liquidity,” Dan Janki, Delta’s chief financial officer said.
See our guide to airline stocks for more information.

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