Transportation stocks in general have had a rough year in 2015 with the Dow Jones Transport Index down over 15% as we prepare to close out the year. Airlines have performed modestly better as a whole, but it's been hit and miss. Stocks like JetBlue Airways (JBLU) and Alaska Air Group (ALK) are both up over 40% while laggards like United Continental (UAL) and American Airlines Group (AAL) are down double digits.
Delta Air Lines (NYSE:DAL) has had a decent year thus far in 2015 returning shareholder just over 5%. There are a number of factors in place, however, that suggest that Delta could be in for an even bigger year in 2016. Oil prices, revenues per passenger, foreign exchange rates and valuations will all factor into the stock's performance in the coming year but I like the way Delta is currently positioned to take advantage of some of these trends. For the reasons I'm about to discuss, I think Delta could be a top choice for 2016.
Continued low oil prices boosting the bottom line
Oil prices are near lows last seen in 2008 as OPEC countries continue to pledge that they'll maximize production in the face of crude oversupplies. With the Fed likely to raise interest rates at any moment, a lot of pressure will continue to weigh on crude prices likely keeping them in the mid $30 range until something - a pullback in production or an increase in oil demand or both - changes.
Low oil prices are damaging to energy companies but are welcome news for airlines. In the 3rd quarter of 2015, Delta reported net income of $1.3 billion versus $0.4 billion in the same quarter a year ago. At the same time, fuel expense fell to $1.1 billion from $1.8 billion year over year. I'd expect this trend to continue at least
