Airlines: Delta Air Lines Still the Best; More Seats for JetBlue?

Delta Air Lines (DAL) is flying high this year, but that can’t stop Morgan Stanley’s John Godyn and team shouting their love for stock from the rooftops.

Shares of Delta Air Lines have gained 37% this year, topping Southwest Airlines’ (LUV) 29% rise, United Continental’s (UAL) 6.6% advance and JetBlue’s (JBLU) 1.2% increase. American Airlines (AAL) has gained 52% so far in 2014.

Godyn explains why he thinks Delta Air Lines remains the cream of the crop:

Today, many we speak to believe that Delta Air Lines’ advantages are primarily a function of where the company is in its post-M&A lifecycle of sorts rather than representative of apersistent, unique set of competencies, assets, processes, and cultural factors. After our most recent round of meetings with mgmt this week and last – we can't help but increasingly believe the latter.

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In a nutshell, we feel slightly more confident in DAL's non-fare revenue opportunities and ability to maintain sub-inflationary [cost per available seat miles] ex-Fuel growth in 2015 and as a result raise our current 2015 EPS estimate of $3.90 to $4.00 – reaffirming our Street-high stance.

Wolfe Research’s Hunter Keay and Jared Shojaian thinks JetBlue should add more seats:

One area where we believe JBLU has an opportunity to improve earnings is cabin densification. Simply put we think JBLU doesn't have enough inventory for sale. The concept of flying planes with 34" of legroom in coach is an idea that's not only shunned by the most profitable airlines in the country, but it's also one that has failed in the past. American tried it and failed 15 years ago – what makes JBLU so different?

Southwest Airlines…perhaps a comp for JBLU considering Southwest Airlines’ customer service focus, operates its B737-700s with 31" of pitch. If JBLU converted all its A320 coach seats to Southwest Airlines’ B737-700 seat pitch then it could add at least one more row without sacrificing any high yielding Even More seats. This alone could result 18% EPS accretion.

Shares of Delta Air Lines have dropped 1.3% to $37.65 at 2:06 p.m. today, while United Continental Holdings has fallen 1.1% to $40.37, JetBlue has declined 1% to $8.66 and Southwest Airlines is off 1.1% at $24.50.