Is Delta Air Lines a Buy, Sell, or Hold in 2026?

Bullish investors in Delta Air Lines (NYSE: DAL) argue that the company's shift toward premium cabin revenue, loyalty programs, and income from its co-branded American Express credit card will help it consistently cover its costs, even through the industry's inevitable volatility. And with jet fuel prices doubling in 2026 as a result of the conflict in the Persian Gulf, now is the perfect time to test out the theory.

Delta's challenges in 2026

Things change quickly in the travel industry. When Delta's management turned up to present at the J.P. Morgan Industrials Conference in mid-March, it had many positive things to say about the market. In fact, it raised its revenue guidance for the first quarter from an increase of 5%-7% to "high single digits" on the back of what CEO Ed Bastian described as "very, very strong all quarter long" sales with particular strength in the March spring season, which is typically the season when travel bookings really start to accumulate.

While the Iran war began in late February, it was too early to tell what the consequences would be in mid-March. By May, the steep rise in jet fuel prices caused by the closure of the Strait of Hormuz sent crude oil prices above $100, and the jet fuel crack spread (the difference between crude oil and jet fuel prices) to exceptional heights. As Bastian noted on the earnings call in early April, they are "roughly double what they were earlier in the year."

All of this means the airline industry is facing a sharp increase in costs, even as demand remains strong. As Bastian noted on the earnings call, "The acceleration we saw in March is carrying forward into the June quarter."

Image source: Getty Images.

Where is Delta heading in 2026?

It's a somewhat mixed picture. Wall Street analysts are raising their full-year revenue targets while significantly lowering their full-year earnings and cash flow targets. As you can see in the table, revenue expectations are higher (due to the strong first quarter and management raising prices in response to higher fuel costs). Still, available seat miles (ASM) are lower because Delta is reducing capacity until the price of jet fuel moderates.

The Wall Street consensus bakes in a massive $4.3 billion increase in fuel costs, which is negatively impacting operating income and free cash flow (FCF).

Data source: S&P Global Market Intelligence. Table by author.

Is Delta Air Lines a stock to buy?

While the reduction in earnings and cash flow expectations is disappointing, Delta still looks like a good value based on the updated estimates. The point about buying value stocks like Delta's is that their valuations can withstand some disappointment, given the margin of safety. For example, based on the updated estimates, Delta now trades on 12.9 times earnings and slightly below 20 times FCF.

These are strong valuations for a company facing a big jump in its main costs. Also, demand is still high, and Delta's revenue is well diversified. In the last quarter, 62% of its revenue came from premium cabins, loyalty programs, the American Express partnership, and third-party aircraft maintenance, rather than from the main cabin alone.

Image source: Getty Images.

Diversification is protecting the downside, and if jet fuel prices moderate while end demand remains strong, Delta's earnings expectations will inevitably rise through 2026.

On balance, Delta Air Lines is still a buy, but watch closely in case the increase in costs associated with the conflict feeds through into any weakness in end demand. However, in this environment, it makes sense to favor airlines with these business models to weather the uncertainty, and Delta is definitely one of those.

American Express is an advertising partner of Motley Fool Money. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Express and S&P Global. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.