Airline stock plays: Why Delta still flying above Jetblue

[Music] it's a big noisy Universe of stocks out there welcome to goodbye or goodbye our goal to help cut through that noise to navigate the best moves for your portfolio as the summer season is upon us we're navigating a turbulent few months for the airline industry with a goodbye or goodbye scorecard yes for the first time ever we're taking a look back at a call that a guest has made to see how it's done and so let me bring in Steve Trent City Airlines analyst Steve thanks for being here so at the beginning of the year you your goodbye the stock you liked was Delta and you said to avoid JetBlue so big reveal let's see how you did you did pretty darn good de Delta is up about 25% year to date and JetBlue has fallen uh about 1% or so for the year to date including today so your call worked out pretty well but you're sticking with it you say this is still a a good call to to have and you still like Delta here right yes absolutely I think we're in the early early Innings of this okay so let's go through why you talked about wallet share gains for Network Airlines so what do you mean my network network versus discount I assume absolutely so if you bifurcate the US Airlines between the full service carriers on Delta side and the discount Airlines the jet Blues on the other side of the fence you've actually seen a big pickup pre pandemic if you look at the earnings wallet share the network Airlines had roughly 75% of the pie uh on our numbers 2024 2025 they have closer to 92 93% of the pie so I've seen these post-pandemic shifts in work most people are no longer in the office 5 days a week so that fly out Sunday night fly home Thursday night it's not totally gone but it's diminished and I think that shift has led to hybrid travel uh which has really benefited the network l interesting and and also we what we've seen is maybe more economic activity per available seat mile so ringing more profit out of those out of those seats at Delta how are they doing that absolutely so the the first issue you have not only are they taking higher share uh but we also continue to have aity of capacity on a per capita basis so if we go back to 2019 there was a little less than $24 of economic activ per available seat Mile in the US domestic Market uh last year that was above $29 this year we think it's going to be above $30 these Global Aerospace supply chain issues are not going away so at the same time Network airlines are picking up more wallet share the wallet opportunity itself is getting bigger from that dir of capacity we have out there and they're going to be able to price more effectively that scarce capacity than a discoun a line it sounds like that means prices are going up for us probably okay and then finally there are the co-branded cards that they have and the money that Delta gets from that and that's going well I guess it's going extremely well and I would say Delta really has the best brand of a US Airline and they've spent years developing that very good brand and that's everything from being the very last airline to unblock the middle seat at the height of the pandemic uh to the only major that did not dilute its Equity holders uh with convertible debt or Equity offerings during the pandemic with a very small number of warrants that got issued to the treasury Department because of the Caris act so when we think about that counterparty profile uh a big Global uh loyalty program uh they're making very good Revenue off of that so we think that trend is going to continue and as well as be a really important distinguishing factor between the network and the Discounter lines so let's talk about what could potentially go wrong for a Delta we could see a a regulatory Crackdown what would that look like and what effect would that have sure absolutely so you've seen little risp of this already uh slightly trickier rules for the airlines in terms of being um required to pay refunds to consumers after there's a certain number of of hours of delays stricter rules on compensation for check bags does that get more intense for the group I I think it's hard to say uh but do we get something more extreme uh that will limit uh co-branded card activity limit loyalty program activity I'm not saying it's going to happen but this is kind of the Wild Card one would worry about in this case gotcha all right so let's get to Jeff blue now and your goodbye the stock you don't like as we mentioned the stock is not done terribly well here and you say it doesn't have its Revenue verticals thriving what does that mean yeah absolutely so when we think about that fantastic loyalty program you have with a delta or or United Airlines for example uh it's really tough for the discount Airlines uh to have that same level of punch so a large financial institution as the partner loves the big programs for the relatively wealthy consumers they can cross sell all day long you know a discount Airline doesn't have that it doesn't have the global capillarity uh Jet Blue has a very good mint product uh and they do some of that transatlantic which is great but that's a very small piece of the pie so there's no Trend specific they do not have a robust co-branded card program like the others do they're largely domestic you know Mexican beaches there's overc capacity now Caribbean there's some over capacity so they're in a tougher spot gotcha and then of course there's the the big event that didn't happen with the company right they were gonna um get together um with the Sprint uh spirit excuse me that fell apart so now what is kind of the question absolutely and it's a tough one so if you're Jet Blue in that case you wanted scale you wanted to jump to be the number five position uh in the group and it also sort of reminds me of what we saw year years ago with Southwest Airlines acquiring Air Tran Southwest needed the pilots and they needed the equipment and they got both uh Jet Blue seem like it wanted to do the same uh the regulator said no uh so we have the pilot and equipment issue uh we have the gared TOA fan engine issue potentially um making some hiccups here Inc capacity growth um so it kind of begs the question strategically what do they do um I I think it's uh uh a tough thing to make heads or tails of uh after that merger got plucked yeah and then that leads to the idea that there's not a way back to sustainable margins when you have those kinds of headwinds it's hard so getting back as well to what I mentioned on the network Airlines having that really big post-pandemic pickup and wallet share yeah largely two Network Airlines um if you're Jet Blue uh on our numbers it doesn't look like an easy path to get back to sustainable margins and earnings uh when you're in that situation so there has to be some kind of course correct um you know on your verticals or on your seat M profile and it's not sure how either is going to get done gotcha and then what could go right for Jeep will they have new management so they could come up with a plan maybe to address some of these issues absolutely look they have a new CEO she's terrific she's going to do her thing uh strategically are there surprises that we can see from them absolutely you've got some schedule uh 13d filings out there some new people on their board uh do they have some wild cards to show the market uh I don't necessarily see any but that's always something that you've got to keep your eyes on happen all right and any position in either of these stocks uh me neither okay all right all right well you're sticking with it here telling people buy Delta and avoid JetBlue that's something that you've uh stuck with since January so thanks for coming back Steve good to see you again thank you for having me appreciate thank you for watching goodbye or goodbye we'll be bringing you new episodes three times a week at 3:30 p.m. Eastern

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Id: kVzLPN14OCU

Length: 8min 46sec (526 seconds)

Published: Fri May 31 2024