The deals inked by the U.S. administration with Qatar (in January) and the United Arab Emirates (in May) on massive subsidies to Gulf carriers seem to be paying off. Following the deal with the UAE, Delta Air Lines, Inc.'s (DAL - Free Report) CEO Ed Bastian had said that he intends to resume services to destinations, where the likes of Etihad Airways, Etihad and Emirates have had an advantageous position earlier.
In keeping with his words, this Atlanta-based carrier announced that it will resume non-stop flights to Mumbai from next year. In fact, to facilitate air travel on the route, Delta aims to expand its codeshare relationship with the Mumbai-based Jet Airways. Expansion of the deal would allow passengers to fly to other Indian cities. Other details pertaining to the resumption of the operation will be disclosed by Dec 31, 2018. Service will, however, start following government clearances.
Assuming that the requisite approvals are obtained, Delta would return to Mumbai after a gap of 10 years. The airline behemoth had last operated on the route (non-stop) in 2009. Currently, United Airlines — the wholly-owned subsidiary of United Continental Holdings, Inc. (UAL - Free Report) — is the only U.S.-based carrier to offer non-stop services connecting India and the United States.
Why Did Delta Stop Indian Service in the First Place?
According to an Associated Press report, Delta had pulled out of India in 2015. The carrier had blamed the massive government subsidies enjoyed by its Gulf counterparts for this decision in the otherwise lucrative market. As a result, Delta’s operations to India were negatively impacted and became unviable. The company was unable to compete effectively with the Gulf carriers in India due to the massive subsidies enjoyed by the latter. Operations to certain other Asian markets were also similarly hurt.
In 2015, Delta along with American Airlines Group Inc. (AAL - Free Report) and United Continental had alleged that state-owned carriers like Etihad Airways and Emirates gained from the massive subsidies and other benefits. Per U.S. carriers, the government subsidies were unfair in nature, which denied a level playing field to them. The issue snowballed into a major dispute between U.S. carriers and their Gulf counterparts.
In a bid to resolve the long-standing dispute, the Trump administration inked deals with Qatar and the UAE. The deals require the likes of Qatar Airways, Emirates and Etihad Airways to increase financial transparency.
With the Indian market offering significant commercial potential, it is of little wonder that Delta has decided to resume services to India immediately after the resolution of the crisis. We expect more U.S. carriers to follow suite, thereby resulting in more U.S. exposure not only to India but other Asian markets as well. Naturally, we expect investor focus to remain on this burning issue going forward.
Zacks Rank & Key Pick
Delta carries a Zacks Rank #3 (Hold). A better-ranked airline stock is SkyWest, Inc. (SKYW - Free Report) , carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of SkyWest have rallied more than 61% in a year’s time.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>