The airline industry is notorious for its cyclicality. Traditionally, airlines like Delta Air Lines (DAL +0.24%) are seen as having strong pricing power when travel demand is high, only to suffer when demand wanes, as ticket prices decline while the airline continues to carry high fixed costs.
That said, Delta might not be as risky as you think, and the market may need to rethink how it values the company. Here’s why.
Delta Air Lines is diversifying its revenue streams
Chief Commercial Officer Joe Esposito outlined on the second-quarter earnings call that “diverse revenue streams represented 61% of total revenue in the quarter, up 2 points over last year, with premium and loyalty revenue both up nearly 20%.”
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The 61% figure is impressive enough, and it makes sense to create an apples-to-apples comparison across the industry, as other airlines don’t operate refineries (which is a low-margin business anyway). Still, I would argue that it underplays the issue.
By “diverse revenue streams,” Esposito means Delta’s non-main-cabin revenue. That’s fair enough, but when calculating the 61%, Delta adjusts the revenue figure by stripping out its refinery sales to third parties. Esposito is referring to the bottom figure on the right side of the table, but including refinery sales increases the share of non-main-cabin revenue to 65.3%.
|
Revenue Stream |
Second Quarter 2026 Reported |
Second Quarter 2026 Adjusted |
|---|---|---|
|
Ticket main cabin |
$6.851 billion |
$6.851 billion |
|
Ticket premium cabin |
$6.920 billion |
$6.920 billion |
|
Loyalty travel awards |
$1.247 billion |
$1.247 billion |
|
Travel-related services |
$589 million |
$589 million |
|
Cargo |
$294 million |
$294 million |
| Other* | $3.856 billion |
$1.765 billion |
|
Total |
$19.757 billion |
$17.666 billion |
|
Share of non-ticket main cabin revenue |
65.3% |
61.2% |
Data source: Delta Air Lines presentations. * Adjusted figure excludes $2.091 billion in third-party refinery sales.
A deliberate strategy
Sticking with my figure of 65.3%, it represents a significant increase over the full-year 2017 equivalent figure of 50%. Back then, main cabin revenue was 1.7 times Delta’s premium cabin revenue, but as you can see above, Delta’s premium cabin revenue exceeded main cabin revenue in the second quarter.
It’s all part of a deliberate strategy to diversify Delta’s revenue away from the extreme cyclicality of main cabin ticket revenue. As Esposito noted on the recent earnings call: “We’re not growing Main Cabin seats. This is a multiyear, several years in a row, that we haven’t grown this cabin. We won’t be growing it next year either.”
Image source: Getty Images.
Moreover, Delta continues to grow its highly successful loyalty-related revenue alongside remuneration from co-branded credit cards with American Express (management expects to grow 10% to $9 billion in 2026). This is high-quality revenue, as SkyMiles is paid for up front and is less tied to flying volume.
Higher-quality earnings
While Delta is never really going to escape cyclical exposure, that exposure is a lot less than many investors think. Trading at just 12.4 times 2026 earnings estimates, the stock looks like an excellent value, with plenty of revenue streams (premium, loyalty, credit cards, etc.) that hold up well in a slowdown.
All told, Delta is improving the quality of its earnings, including its resilience during a slowdown. That’s good news for investors.
