Delta’s focus on premium cabin and atlantic flying driven by its loyalty program lead the airline to enjoy industry best profitability. Delta targets 1x gross leverage, an A level balance sheet in our view.

Delta pulled its full year guidance during 1Q25 earnings and zeroed out capacity growth for the second half of the year, citing a more challenging macro environment given the uncertainty on global trade.

Delta has Outperformed peers this year on its strong credit quality and defensive nature. We are retaining our O/P view and continue to favor DAL compared to LUV. We are happy to capture to 50 bps basis between the two.

DAL faces all the industry exogenous risks: geopolitical events, pandemics, oil price volatility, and now recessionary fears.

The recently weaker dollar may manifest as a headwind to international demand. DAL was able to capitalize on strong Atlantic recovery post-pandemic through its extensive existing network; however, it lost its status as the number one airline on US-Europe routes to United which grew very fast in the segment and now occupies the first spot.

The airline noted that demand winds have shifted swiftly after the tariff talks started to pick up. CEO Ed Bastian noted that there was a significant drop in demand, both for consumers in the main cabin and for business travelers. While the premium cabin is currently holding up, it remains to be seen if the recession fears will hit that demand segment as well.

DAL’s 1x leverage target is the lowest target in the industry.