Something happened on the Delta air Lines (DAL) call yesterday that caused my jaw to drop -- and I typically don't do a lot of jaw dropping on a conference call.
Delta's management acquitted itself well -- despite the $2 billion increase in fuel costs, which caused a shade down. I think we all expected them to talk about it, and they did.
But then, on the first question, Jamie Baker from JP Morgan, a totally respected analyst, unleashed the frustration we all feel about this group, with its horrendous trading in a terrific time for stocks: "It's not your grandfather's airline industry. You've spoken to the industry's structural changes. I think you and I are in agreement on this topic, but the economy is roaring, your stock's down 10% year to date, you're trading at a multiple that's no better than when the industry was basically a joke. You are essentially gaining zero credit for what you have accomplished."
Jamie then added, frustration building, "So my question is, what is still broken here? And please don't tell me you have to pass through a recessionary test in order for the multiples to rise, because that just means there's no reason to own the stock. So I promise there is a question here: What is still broken? What does Delta or the industry still need to tackle to get its message into the equity market."
Essentially, there was no question here. Management then gave the usual answer you would expect, which, among other things, is that the industry has to get its margins up -- which have been down for three straight years. How it was in real trouble in 2009, but still came through. How the fuel costs weighed on it. How it is significantly profitable. But Jamie came back, unappeased: "All right, I appreciate the comments. I'll turn the microphone back to others for all the RASM and CASM questions," meaning the nuts and bolts about how much it made per seat miles.
It was so sobering. It's almost as if there is nothing they can do. The company has bought back 19% of its stock in the last five years. It has given good dividends. It yields 2.7%. And it just doesn't matter.
Now the stock went up yesterday. Up 1.79% on a really good day. But Jamie's right, there is nothing that can be done. You can't shade down and expect that things will be fine -- especially after you just shaded up not that long ago.
What's the answer? I think the answer is that after all the concentration, after all the planes we ride on that are extremely full flights, these simply are no better than trading vehicles. Jamie's non-question basically said that.
So my conclusion? I reiterate that even after all that they have done, even after how good they are, the whole industry just will not get a decent multiple -- and unless you want to trade sentiment, which is what you are doing if you bought yesterday, I cannot recommend them as investments. They just won't work at it and Jamie's rhetoric says it all.