Delta Is Taking Off From Seattle

| About: Delta Air (DAL)


Delta released first quarter results that beat analysts' estimates, and the company is now consistently outperforming the industry over the past 3 years.

New routes from Seattle to Asia will be the growth driver for the company in the coming years.

Delta is trading at lower multiples compared to the industry average, and therefore is worth buying at the current price level.

Recent Q1 results:

Once again, Delta (NYSE:DAL) has delivered and posted strong first quarter results despite the poor weather in the first two months of the quarter in the U.S. Overall, the company cancelled 7500 flights due to harsh winter in January and February but still managed to deliver strong sales, in line with consensus estimates. The sales were up 2% to $4.166 billion, compared to a year ago results.

Operating income increased primarily from lower fuel prices, maintenance cost and aircraft rentals and the company managed to post $215 million in operating income, up from the $70 million in the year ago quarter. The adjusted earnings are also coming ahead of the consensus estimates, which was 33 cents, up 13% from the estimated 29 cents.

Going forward I believe the company is well positioned to deliver strong results in the coming quarter as the company's new routes from Seattle will drive the company's future growth. Let's discuss how industry trends along with company's new routes will strengthen the company's position in the coming years.

Future of Air travel:

The future outlook for air passenger travel remains strong in the coming decade due to rising income levels and more business opportunities in the emerging markets, which will drive the business and leisure travel in these markets. The overall world economy will grow by 3.2% from 2012 to 2032, but Asia Pacific will grow faster than the rest of the world, by 4.5% in the forecasted period.

Asia Pacific economies continue to exhibit strong growth. During the next 20 years, nearly half of the world's air traffic growth will be driven by travel to, from, or within the Asia Pacific region and total air traffic will grow 6.3% per year over the coming two decades.

Therefore, the company knows that how important these markets are to the company's future growth and have taken the right steps.

Steps that ensure growth:

So let's discuss how the company will capture these growth opportunities in the Asia Pacific region. No doubt, the company already has a strong foothold in the Asia region and operating in many countries, but now the company has extensively expanded their services in Seattle to build the city as its international gateway to Asia.

Currently, Delta operates four non-stop flights from Seattle to Asian destinations Beijing, Shanghai, Tokyo-Narita and Tokyo-Haneda. In anticipation of future growth now the company has decided to add two new non-stop flights from Seattle to Seoul and Hong Kong from June 2014.

Furthermore, the company has also invested $14 million for expanding its related infrastructure such as ticket counters and renovated lobbies at the airport to support the rising number of flights between the U.S. and Asia. So I believe the company is well positioned to capture the major growth opportunities and will further increase its market share in the Asia Pacific region, which will boost the company's top and bottom line in the coming years.

The company is also serving non-Asian international destinations from Seattle. It already provides two nonstop flights to Amsterdam and Paris and last month the company started a nonstop flight from Seattle to London Heathrow as part of its joint venture with Virgin Atlantic. So this new route also favorably impacts the company's top line in the coming years.

Final words:

The stock is inexpensively priced compared to industry averages. The company is trading at a P/E of 13X compared to the industry average of 38X. Moreover, analysts have also a bullish sentiment about the current stock price and estimating that the price would be around $45 which gives us around 21% upside potential at the current price level. To sum up the above discussion, I believe that the factors discussed above are not yet incorporated in the stock price and the price target of $45 seems to be achievable.

Therefore, in anticipation of future prospect of the company, I believe an investor with a long-term prospective should definitely consider Delta Airlines and I offer a strong buy recommendation

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.