Delta Air Lines: This Phoenix Can Rise From the Ashes

Key Points

• Delta Air Lines had a solid quarter, but guidance was adjusted to reflect growing uncertainty.
• Cash flow is robust, providing sufficient cash flow for debt reduction and capital returns. 
• Delta is on track to reach its 1x leverage target and solidify its investment-grade credit rating. 

Delta Air Lines NYSE: DAL stock price crashed and burned in Q1 and early Q2, but it is a phoenix that can rise from the ashes.

The underlying cause of the price crash is the maximum uncertainty linked to Trump’s tariff agenda and the trade war it caused. But investors should note that Delta’s business remains firm, and the company is rebuilding shareholder value quickly. 

Delta has regained what it lost during the pandemic, and now the company is on track to continue setting record results in 2025. While the outlook has been clouded, it continues to include expectations for cash flow, improving profitability, debt reduction, and strengthening its already strong balance sheet and investment-quality debt rating. 

Delta: Solid Q1, Guides For Q2 Strength

Delta had a solid FQ1, with reported and adjusted revenues of $14.04 billion and $12.99 billion, setting company records.

Revenue outpaced MarketBeat’s reported consensus by wide margins due to strength in high-margin streams, including Premium, Loyalty, and International. Domestic and Main Cabin sales and Corporate were softer but contributed to overall performance.

Margin news is also good, with gross and operating margins contracting less than expected due to cost focus, controlled CAPEX, and lower fuel costs. 

Fuel costs are a critical factor, with the average expense down 7% year over year on an 11% decline in the average gallon cost and the price of WTI in free fall. The price of WTI hit a multi-year low in early Q2 2025 and will likely head lower before hitting its floor and rebounding.

The combination of increased global capacity, ramping production, ample supply, and economic jitters will keep the energy price under pressure, which is bad for energy companies but great news for transportation stocks, including airlines, shippers, and freight haulers. 

While the impact of tariffs is yet to be seen, and full-year guidance remains strong, the company expects Q2 revenue to be roughly flat—better than the consensus estimate of a 2.75% decline. However, earnings guidance is slightly below expectations, with a midpoint of $2.00 compared to the $2.23 consensus. This may reflect a cautious stance due to uncertainties around traffic, product mix, and fuel costs. Importantly, the $2.00 guidance is still sufficient to support the company’s balance sheet, ongoing debt reduction, and capital return strategy.

Delta On Track to Meet Debt Reduction Goals

Delta achieved credit-quality debt ratings in late 2024 but did not stop there. It continues to reduce its debt, lowering the net-total by 6% YTD in Q1 and 16% compared to last year, and has plans to reduce it further as the year progresses.

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The target is $3 billion by year’s end, sufficient to reduce net debt by roughly 17.5% and put the company on track to reach the 1x leverage target. At the end of Q1, the company’s leverage ratio was 2.6x, with assets flat, liabilities down, and equity rising. 

Delta’s dividend is attractive in early Q2. The stock yields more than the broad market average, even after its price implosion, and can be expected to grow robustly. The payout ratio is less than 10% of the 2025 earnings outlook, with balance sheet and free cash flow improvement ongoing. The last increase was worth 50% to investors; the next is due in late summer and could be comparably large. 

Delta’s Crash is an Overcorrection; It Is Set Up To Rebound

Some analysts reset their price targets lower and/or downgraded Delta stock in Q1, aiding the downdraft in price action. 

However, the market has overcorrected and moved significantly below the low end of the target range.

Trading at $35, DAL is 16% below the lowest target, and consensus forecasts a move to $65 or an 80% upside that could be reached later this year.

The primary catalyst will be easing global trade tensions, and it may not take much to get the bull market back into gear.