As the entire airline industry weathers the storm of rising costs and geopolitical divisions, Delta Air Lines (DAL) has managed to maintain its altitude against the market’s current pull. However, this difference makes the setup unstable. Even after Friday’s decline, DAL is still trading above $63 per share. Notably, this is about the same level as on December 1 of last year, when oil prices were well below $60 per barrel. Since then, it’s up nearly 70%. Peers like American Airlines (AAL) and Southwest Airlines (LUV) are seeing their valuations compressed as the “crack spread paradox” takes hold. This disconnect suggests that DAL is “priced for perfection” in an environment where margin for error is rapidly disappearing. With oil prices soaring since the Middle East wars began, businesses and consumers alike are feeling the real pain in refined products and “at the pump.” Jet fuel prices have soared even further. As an example, consider the spot price of jet fuel in Singapore. As of this writing, it’s up nearly 180% from its lows just three months ago to more than $5.27 per gallon. Delta Air Lines is often touted as the “smartest guy in the room” because of its ownership of Pennsylvania’s Trainer Refinery, which it acquired from Phillips 66 in 2012. The asset provides a “natural hedge” by securing refining margins that would hurt other airlines, but it is not a panacea. Airlines’ entry into the energy business shows how important fuel costs are to airlines. The good news is that refineries protect Delta from the spread between crude oil and jet fuel. The spread between refined products and crude oil prices is known as the “crack spread,” and that spread is widening. The bad news is that they can’t protect themselves from rising prices of the underlying oil itself. Delta management recently warned of a $400 million hit in fuel costs in the first quarter of 2026 alone. (Source: Edward Bastian speaking at the JPMorgan Industrials Conference this week, March 17th). It raised its revenue outlook to compensate, but counting on “record bookings” to outpace fuel increases is a dangerous game with consumer resiliency. Several airline CEOs have cited strong demand as a reason, and most have said they intend to raise prices to compensate for rising fuel costs, but consumers are already feeling the pinch at gas pumps and checkout counters. Is it realistic to assume that demand dynamics will remain as strong as they were before the current Middle East wars, even after consumers and businesses start absorbing these costs in the coming months? The market is currently rewarding Delta’s “premiumization” strategy and royalty income from American Express, and the company certainly deserves a premium for much of the group, but saying it’s less affected by industry pressures doesn’t mean it’s unaffected. Consider that since Dec. 1, JetBlue Airways is down nearly 10%, United Airlines is down 11%, Air France/KLM is down more than 21%, and American Airlines is down more than 25%. Depending on the valuation metric chosen, such as EV/EBITDA, P/E, or P/BV, Delta currently enjoys a premium of 17% to 26% over the group. Stock prices are also toying with the 200dma. So what should I do? For those who want (or need) industry exposure and feel that Delta is the best company on a distressed block, consider a hedge such as a put spread collar. For example, you could use a May put spread of 57.5/62.5/5/72.5 and raise money by selling a 72.5 upside call against a long position in the stock. Note that this will prevent a decline to mid-to-late Q3 2025 levels. For those looking to short DAL, a similar strategy may make some sense (without the long component of the stock, of course). Rather than actually shorting the stock at this level, at $72.5, which is pretty close to its 52-week high, it’s a difficult level for the stock to surpass unless the global geopolitical/energy crisis is resolved soon, which most of us would certainly like, but it’s not something we can count on. That transaction would look like this: Disclosure: None. All opinions expressed by CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, its parent or affiliates, and may have been previously disseminated on television, radio, the Internet, or another medium. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The Content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for full disclaimer.
