Delta Air Lines Faces Challenges Amid Volatile Market Conditions

Delta Air Lines Inc. has experienced significant stock volatility recently, largely attributed to rising fuel costs and operational disruptions. The airline, the largest in the world by revenue, has been grappling with several challenges in the third quarter of 2024.

An IT outage in the summer, linked to their service provider CrowdStrike, caused disruptions across Delta’s operations. The incident led to thousands of flight cancellations, affecting approximately half a million passengers and resulting in estimated damages exceeding $500 million. Delta’s initial financial guidance included $380 million in lost revenue and $170 million in additional expenses for the third quarter.

Despite these setbacks, Delta’s stock performance showed resilience. The company managed a recovery in late August and September, supported by strong travel demand and initially lower fuel costs. However, Delta now faces renewed challenges as oil prices have surged due to escalating conflicts in the Middle East, particularly involving Israel and Iran.

Fuel costs, which represent a major portion of Delta’s operating expenses (between 18% and 20%), have seen a significant rise. Delta does not hedge its fuel costs like many European airlines, making it vulnerable to fuel price volatility. However, the company’s ownership of an oil refinery offers some buffer against fluctuating prices.

Financial analysts consider Delta a strong investment opportunity, with a PEG ratio of 0.94, indicating good value relative to industry standards. Analysts forecast third-quarter earnings per share at $1.55 and revenues of $15.1 billion, although recent revisions have generally been downwards.

Further compounding Delta’s challenges is Hurricane Milton, which has led to the cancellation of over 1,700 flights, affecting major airports in Florida. Delta canceled 207 flights, which could significantly impact financials and operations.

The market sentiment toward Delta is largely optimistic, with analysts rating it a Strong Buy. Analysts such as Christopher Stathoulopoulos from Susquehanna raised Delta’s price target from $50 to $59, reflecting confidence in the airline’s recovery prospects despite current adversities.

As Delta navigates these turbulent times, its strategic decisions on managing operational costs and external pressures, such as fuel price volatility, remain critical to maintaining investor confidence and ensuring stable growth.