During their recent earnings report, Delta shared some impressive numbers. They did report a net loss, but when you take into account certain factors like a profit sharing payment to employees, their operating income and net income were actually quite positive. They also generated record operating cash flow in the first quarter, which is a great sign.

Looking ahead, Delta’s management team expressed confidence in their full-year guidance, expecting earnings of $5 to $6 per share. They believe that consumer demand is surpassing pre-pandemic levels, both internationally and domestically. This strong demand has allowed Delta to reduce their debt and improve their balance sheet, despite still having some debt to manage.

It’s not just Delta that’s feeling optimistic about travel. Other industry players like Marriott and United Airlines are also sharing a bullish view on travel demand for 2023. Marriott mentioned that demand continued to rise across all customer segments and that global leisure demand is incredibly robust. United Airlines pointed out that consumer spending on services, including travel, is rebounding and there may be more room for revenue recovery.

Looking at the overall trend, air travel demand has been steadily increasing throughout 2023 according to TSA data. This suggests that the strong tailwind for Delta and the travel industry as a whole is likely to continue.

Now, let’s talk about valuation. Delta Air Lines currently has a market capitalization of around $22 billion and a relatively low forward price-to-earnings ratio. When comparing to historical multiples, it appears that the company is undervalued. In the past, when there were no major recession concerns, Delta traded at higher earnings multiples. Considering the positive outlook for revenue growth, balance sheet recovery, and ongoing travel demand, it seems unfair to value the company lower than its historical levels.

Of course, there are some risks to consider. If macroeconomic conditions worsen significantly, it could impact travel demand. Factors like rising unemployment rates, persistent inflation, or a deteriorating credit environment could affect consumers’ willingness to travel.

To sum it up, although recession fears and economic uncertainty may be holding Delta Air Lines’ stock back, the current trends and outlook in the travel industry suggest a strong future for the company.