Delta Air Lines' Stock Has Seen Turbulence. Here's How It Could Fly Higher in 2024.

The airline industry has endured huge challenges in the past four years, and Delta Air Lines (DAL 0.08%) has emerged among the strongest of the major U.S. airlines. Massive financial losses in 2020 reflected the grounding of global fleets at the beginning of the COVID-19 pandemic, but pent-up demand for travel resulted in a recovery that led to substantial profits in 2022 and 2023. Delta's stock saw substantial volatility, as well, initially plunging on fears of potential ruin but recovering sharply as industry conditions improved.

Delta is set to report its latest financial results on Friday, Jan. 12, and investors are watching closely to see whether the recent boom in travel is set to continue. Below, you'll learn more about what Delta has done recently and why some shareholders are optimistic about the airline's ability to thrive in 2024 and beyond.

Stats on Delta Air Lines

Source: Yahoo! Finance. Chart by author. EPS = earnings per share.

Looking to regain altitude

Delta hit a low point shortly after it reported third-quarter financial results in October. The airline had a stellar summer quarter, with revenue climbing 13% to new record levels.

Adjusted net income jumped 35% to $1.31 billion, working out to $2.03 per share. Lower fuel costs from year-earlier levels helped boost profits, and adjusted operating cash flow surged 45%.

The passenger segment was the clear winner, offsetting small declines in revenue from cargo and other business operations. CEO Ed Bastian said that Delta saw favorable conditions continue into the fourth quarter.

However, many investors focused instead on the likelihood of slowing revenue growth and an end to declining fuel-related tailwinds. Moreover, guidance for earnings of $6 to $6.25 per share for the full 2023 year was at the low end of previous projections, and Delta slashed its free-cash-flow guidance by a third to $2 billion.

Mergers in the skies

Since then, though, interest in airlines has increased. The proposed merger of Alaska Air Group and Hawaiian Holdings highlighted the attractive valuations in the industry, particularly if you assume that travel demand won't fall as much as some people fear. Moreover, as economists have grown more confident that the global economy might avoid a full-blown recession, airline investors have gotten more comfortable that high profit levels could last longer than previously thought.

It's also apparent that Delta might have dodged a potential problem facing other airlines. The recent grounding of Boeing 737 MAX 9 aircraft, following an emergency involving an exit-door plug, affected some of Delta's competitors, including Alaska and United Airlines Holdings. However, Delta didn't list the MAX 9 as one of its fleet options, so it could potentially pick up some extra business from travelers whose flights on rival airlines got disrupted.

The big question is, how demand will look in 2024? Projections from the International Air Transport Association call for record levels of travel in the coming year, breaking old records from before the pandemic. Yet as inflationary pressures subside, Delta's pricing power could start to abate. That has some investors looking for profit growth to moderate or go negative, even while sales continue to climb.

In order to keep the upward trajectory in its stock price, Delta's fourth-quarter financial report will have to reassure investors that the airline has the ability to keep thriving, even as the massive return to normal travel conditions finally plays itself out. Even with stiff competition, Delta's perception as a premium airline -- particularly among business travelers -- could give it an edge as 2024 goes on.