Why Delta Air Lines, American Airlines and Southwest Airlines increased on Wednesday


What happened

The shares of the airlines received a second wind in the early afternoon on Wednesday, with Delta Airlines (NYSE: DAL) leading the charge with a 4.1% gain from 12:15 p.m. EDT today. Southwest Airlines (NYSE: LUV) stock and American Airlines Group (NASDAQ: AAL) were not far behind, climbing 4% and 2.5% respectively. The credit for the surge must go to Delta.

So what

Speaking on Fox Business this morning, Delta CEO Edward Bastian predicted that after months of flight reductions, Delta will likely make a turn in the near future and slowly begin to scale up again in June and July.

Currently, airline business remains slow and the load factor for Delta is around 35% to 40%, said Bastian. But the company estimates it can reach 60%, even if it means keeping the average seats open to promote social distancing on its planes.

4 planes seen from different angles

Image source: Getty Images.

Bastian added, “Once we hit nearly 60% on an individual route, this will be the trigger for us to add more planes to the system. Judging by current trends, he thinks the company will likely add about 200 flights in June, then another 200 or 300 in July. And it’s a trend he sees continuing over the next 12 to 18 months.

Now what

Bastian was talking about trends in domestic travel. He warns that international traffic, which is subject to travel bans and warnings from several countries that could slow a recovery, is unlikely to start returning until 2021.

However, if a revival does occur, domestic travel is probably the place where Delta would like to see it happen first. According to S&P Global Market Intelligence data, Delta derives more than 70% of its annual revenue from domestic flights and less than 30% from international travel in a regular year.

And if what is true for Delta applies to other airlines, then American Airlines and Southwest could benefit even more from this trend. The American realizes 73.5% of its activity at the national level and the Southwest more than 97%!

Besides, even United Airlines Holdings (NASDAQ: UAL), the American carrier most exposed to international business (37.5% of revenues come from travel in the Atlantic, the Pacific and Latin America), should above all hope for a recovery in American domestic traffic.


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