Business is booming again for Delta Air Lines (DAL -0.68%) in 2022, marking a welcome change from the previous two years. However, investors seem more focused on threats like high inflation, soaring interest rates, and the slowing global economy. Delta stock trades for around half its pre-pandemic price.

Delta Air Lines shares probably won't stay down in the dumps for very long, though. Delta's recent third-quarter earnings report highlighted three reasons why the stock is likely to come roaring back over the next two years or so.

Strong premium demand

Over the past decade, Delta Air Lines has built a reputation for better reliability and customer service than its biggest rivals. That enabled it to establish a premium position in the U.S. airline industry.

Today, most of Delta's revenue comes from business travel and higher-income leisure travelers. Those customers are still increasing their travel spending to make up for time lost during the pandemic. As a result, high inflation and slowing economic growth haven't hurt Delta.

Indeed, the company reported record revenue last quarter despite operating with 17% less capacity than it did in the third quarter of 2019. Main cabin ticket revenue declined by 2% compared to 2019, due to lower capacity, but premium cabin revenue jumped 8%. Management estimates that main cabin ticket revenue will account for just 40% of Delta's top line by 2024, further reducing the company's exposure to the most price-sensitive segments of the industry.

Efficiency is rebounding

Despite posting record revenue and a 23% surge in unit revenue compared to Q3 2019, Delta's adjusted net income fell by more than a third over the same period. A big jump in fuel prices -- which are largely outside of Delta's control -- drove some of that earnings pressure. However, the carrier also reported a 23% spike in adjusted non-fuel unit costs relative to 2019.

Inefficiencies related to operating less capacity and extra investments to ensure reliability drove most of that cost pressure. Fortunately, management expects Delta's cost trajectory to improve dramatically as the company restores capacity in the quarters ahead.

A Delta Air Lines plane taking off.

Image source: Delta Air Lines.

For the fourth quarter, Delta estimates that it will operate just 8% to 9% less capacity than it did three years earlier. As a result, it expects non-fuel unit cost growth relative to 2019 to moderate to a range of 12% to 13%. Management anticipates returning to pre-pandemic capacity levels by next summer, unlocking additional efficiency improvements.

Delta is also poised to reap big fuel cost savings from modernizing its fleet in the coming years. The carrier has over 300 new aircraft on order, enough to replace more than a third of its mainline fleet over the next five to six years. Most of these new planes will be at least 20% more fuel-efficient than the ones they will replace.

The AmEx partnership continues to thrive

Finally, Delta's lucrative partnership with American Express is becoming more profitable than ever before. Last quarter, remuneration from American Express reached $1.4 billion, up 37% from 2019, thanks to strong spending on Delta's co-branded AmEx cards and a rebound in cardholder acquisitions.

Delta now expects to receive $5.5 billion from American Express this year. The company will also benefit from a step-up in the rate AmEx pays to buy SkyMiles next year, putting Delta on track to grow this high-margin revenue stream to $7 billion or more by 2024.

The 2024 targets look achievable

Clearly, investors remain worried about the risk that soaring costs or a recession will disrupt Delta's recovery. However, Delta's cost trajectory is already improving, and there's no sign that demand is wavering.

Management has set a target of generating adjusted earnings per share of over $7 and free cash flow of $4 billion by 2024, in line with the company's pre-pandemic results. Delta Air Lines is well on the way to hitting those numbers, making Delta stock appear dramatically undervalued at its recent trading price of approximately $31.