Citi has placed Delta Air Lines and SkyWest on a 30-day upside catalyst watch, saying both carriers stand out amid recent macro shocks and volatile jet-fuel pricing that are likely being absorbed by the market - particularly for airlines with limited exposure to fuel-cost moves.
Analysts John Godyn and Max Lesnik said in separate notes that while a recent fuel spike "is extremely likely to weigh on all airline EPS in the short-term," Delta and SkyWest show attributes that make them relatively resilient. The pair of stocks has been added to Citi's positive catalyst list for the coming month.
SkyWest: contract structure and balance-sheet flexibility
Citi noted SkyWest's contract-flying model results in fuel being effectively passed through for roughly 90% of the carrier's capacity, which reduces the firm's sensitivity to fuel-driven swings in earnings. The bank also pointed to signs of strong travel demand at the supermajors as supportive for the regional operator.
Additional features that Citi flagged include a share-repurchase program the analysts described as "unusual among airlines" and an expected pre-tax margin of about 14% in FY25, which Citi says should help absorb near-term shocks. The bank also highlighted that approximately 55% of SkyWest's fleet carries no financing obligations, giving the company the ability to adjust capacity if market conditions require.
Citi's price target on SkyWest is $112, which the bank says implies a total return of about 23.3% from current levels.
Delta: refinery coverage and structural margin advantages
Delta is viewed by Citi as having "among the least sensitivity" to fuel volatility because approximately 75% of its fuel use is covered by its Trainer Refinery, the analysts wrote. Citi also highlighted Delta's industry-leading projected pre-tax margin of roughly 8.55% for FY25 and its profit-sharing mechanism, which the bank says helps stabilise earnings.
In addition, Citi noted Delta's Atlantic network exposure could prove advantageous if traffic is rerouted due to disruptions at Middle Eastern airports. The bank's price target for Delta is $87, implying a potential return of about 47.1%.
Takeaways
Citi's near-term watch reflects the view that market participants are beginning to price in the recent fuel shock - leaving carriers with structural hedges, contractual pass-throughs, or other margin advantages in a comparatively stronger position. The bank's specific price targets quantify the upside it sees for both stocks over the coming weeks.