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Is Delta Air Lines, Inc. (DAL) Flying Stealth Into Low-Cost Carrier Territory?

Since the IPO in June of 2011, the stock is up over 172% and now has a market cap of $2.2 billion compared to JetBlue’s $1.8 billion. The relatively tiny fleet of 49 aircraft has pushed Spirit to become a legit competitor to the much larger airline carriers. Its average quarterly profit margins have been 8.5% for the past five years and revenue has jumped from $781 million (2010) to $1.3 billion (2012). Analysts currently expect revenue to hit $1.9 billion by 2014.

While many airlines are trying to provide greater luxury to fliers, Spirit Airlines Incorporated (NASDAQ:SAVE) does the opposite and the reviews show this. Known for charging for every ‘extra’ including $5 for printing boarding passes at the terminal, it is near last in customer service, but customers keep packing the cheap flights. Overall, it goes to show that most fliers only want to reach their destination for the cheapest price possible – everything else is extra.

DAL Total Return Price data by YCharts

Stealth mode

It has been nearly two decades since Delta Air Lines, Inc. (NYSE:DAL) first started to seriously come up with a way to compete with the LCCs. Like many other high-cost carriers trying to enter into the LCC environment, the biggest hurdle has always been how to avoid becoming a high-cost carrier selling cheap seats. Today’s situation looks to be a classic ‘if you can’t beat them, join them’ routine except this time it might be different.

Delta Express and Song suffered financially mostly due to inefficiencies in acting as subsidiaries under an umbrella of decades of cemented company culture. If Delta can transform itself away from its fundamental business of buying the latest and greatest like its counterpart United Continental Holdings Inc (NYSE:UAL) still does, it has the potential to be something not seen yet in airspace.

If Delta becomes an LCC, the stock could literally take off because history shows that customers will usually look for the lowest airfare. Being already the largest airline by fleet size, this would put Delta in a prime position to steal customers away from the other LCCs. If Delta doesn’t become an LCC, Delta will remain as it has always been – one of the the top-two major airline carriers in this country – and susceptible to negative or zero profit margins. LCCs like Spirit and JetBlue will continue to slowly maneuver their business and take small chunks of customers from the high-cost carriers.

Michael Carter has no position in any stocks mentioned. The Motley Fool owns shares of Spirit Airlines Incorporated (NASDAQ:SAVE). Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Is Delta Flying Stealth Into Low-Cost Carrier Territory? originally appeared on and is written by Michael Carter.

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