Airline stocks haven't traditionally been a great investment, and they've attracted criticism from no less than Warren Buffett in the past. However, if you are willing to keep an open mind and share my view that something fundamental has changed in the industry, then Delta Air Lines (DAL -0.09%) is a great stock to buy. Here are 10 reasons why.
1. Growth in premium revenue
The traditional view of the airline industry is one of highly cyclical booms and busts, where booms lead to overcapacity, which in turn leads to intense price competition in main cabin ticket prices when the inevitable demand slowdown occurs. One way Delta seeks to mitigate the cyclicity of its industry is by growing its premium cabin revenue, as high-income travelers account for 75% of air travel spending.
In fact, whereas premium seats made up about 10% of seats in 2010, that figure has now increased to 30%, and Delta expects premium cabin revenue to surpass main cabin revenue by 2027.
2. SkyMiles loyalty program
Delta engenders customer loyalty through its highly successful SkyMiles program, which saw a 50% increase in membership from 2017 to 2024. Members tend to spend more at Delta, and the loyalty program generates long-term customer value for the airline. In this way, Delta also diversifies away from the traditional airline model, which is focused on one-off transactional ticket sales relationships.
3. Co-brand credit cards with American Express
American Express purchases miles from Delta, which it then uses to incentivize credit card holders to earn rewards through spending on the card. It's a highly successful product, and American Express' remuneration to Delta through it has grown from $2 billion in 2010 to $7 billion in 2024, with Delta's management aiming to reach $10 billion over time. Again, it's another example of Delta diversifying its revenue streams.
Image source: Getty Images.
4. A new discipline
As implied earlier, airlines haven't always been disciplined in reducing capacity when the industry slows down, and this has led to profit margin bloodbaths in the past. That said, for the second year in a row, Delta has adjusted capacity in response to overcapacity (in the summer of 2024) and a demand slowdown (in the spring of 2025, due to tariffs), which is good news for its cost and earnings management.
5. The industry is also more disciplined
In addition, the industry at large is more disciplined, too, with peers like United Airlines reducing capacity in light of the tariff-induced slowdown in 2025. Discussing the matter on a recent earnings call, Delta's CEO Ed Bastian said, "On the supply side, we're encouraged by the industry's actions to align capacity with demand as we move beyond the peak summer period. Importantly, seats at the lower end of the market are scheduled to contract."
6. Impressive return on investment
I've discussed this matter at length elsewhere; suffice to note that Delta is leading the industry's charge to generate a return on invested capital (ROIC) (13% in 2024) in excess of its weighted average cost of capital (WACC) (8% in 2024) with a long-term target ROIC of 15%. This is a key metric that the airline industry has struggled to achieve overall in the past.
Image source: Getty Images.
7. Market position
Delta is achieving good ROIC because of its favorable market position, thanks to the factors noted (premium, SkyMiles, etc.), but also its core domestic airport hubs in Atlanta, Minneapolis/St. Paul, and Salt Lake City, a strong international presence at London-Heathrow, Paris-Charles de Gaulle, and Amsterdam.
8. Structurally advantaged
As a network carrier, Delta has a structural advantage over the low-cost carriers in the current environment of rising airport costs. Rising labor costs, supply chain, and airport fees (to fund expansion and maintenance) might increase the average ticket price by, say $10, which has an inordinate impact on a low-cost ticket price of, say $70, but not so much on a Delta ticket costing $250.
Image source: Getty images.
9. Robust cash flow generation
Yes, Delta has debt thanks to the COVID-19 pandemic lockdown periods, but as of the end of June, its adjusted debt is down to $16.3 billion from $21.4 billion at the end of 2023. Moreover, given Delta's excellent free cash flow (FCF) generation (management reiterated guidance for full-year 2025 FCF of $3 billion to $4 billion recently), the company's debt reduction will continue as it strengthens its balance sheet.
10. Valuation
Ultimately, while valuations may fluctuate, Delta remains a stock to hold for the long term at its current valuation. Trading on just over 10 times estimated 2025 earnings and 12.2 times the low end of the 2025 FCF guidance range quoted, the market is undervaluing the long-term growth prospects at Delta, and the stock is highly attractive at these levels.
