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Delta and United’s Premium Play: How Airline Titans Are Flying High in a Slowing Economy

Marcus LeeMonday, May 19, 2025 12:13 pm ET

29min read

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As economic uncertainty looms, the airline industry faces a stark divide: legacy carriers with premium and international moats are thriving, while budget-focused rivals struggle. Delta (DAL) and United (UAL) are leading the charge, leveraging strategic network strength and premium revenue resilience to outperform peers in a slowing economy. Here’s why investors should act now.

Tariff Relief and International Expansion: A Tailwind for High-Margin Routes

The recent 90-day tariff relief agreement with China and a U.K. trade framework have removed critical overhangs for airlines reliant on trans-Pacific and transatlantic routes. Both Delta and United dominate these high-margin corridors, with Delta’s Pacific revenue surging 16% year-over-year in Q1 2025 despite double-digit capacity growth. Meanwhile, United’s international unit revenue rose 5.2%, driven by strong demand in premium cabins.

This geographic focus insulates these carriers from domestic main cabin weakness. While budget airlines like Southwest face 5% declines in domestic revenue, Delta and United are prioritizing international markets with stronger pricing power. UBS analysts note that tariff relief has shifted the industry narrative from “downturn” to “slow growth”, stabilizing demand for premium international travel.

Premium Cabin Dominance: The Stickiest Revenue Stream

The real moat lies in premium travel. Delta’s first-class and Delta One amenities—including gourmet dining from Shake Shack and Taittinger Champagne—drove 7% premium revenue growth in Q1 2025. Similarly, United’s Polaris cabins saw 8% revenue growth, with loyalty programs like MileagePlus generating record $2B in cobrand revenue.

These segments are recession-resistant. Even as corporate budgets tighten, business travelers and high-net-worth individuals remain loyal to brands offering differentiated service. UBS highlights that Delta’s “diverse revenue streams” now account for 60% of total income, with loyalty, cargo, and premium segments offsetting broader economic softness.

UBS’s Bullish Call: TRASM Growth and Undervalued Multiples

Analysts at UBS have upgraded both stocks to Buy, citing sustained TRASM (Total Revenue per Available Seat Mile) resilience. While Delta’s TRASM dipped 1% in Q1 due to domestic headwinds, its premium and international segments outperformed, and UBS projects 3% TRASM growth by 2026. United’s TRASM grew 0.5% year-over-year, with premium and loyalty revenue surging 9.2% and 9.4%, respectively.

Valuation multiples further support buying now. Both trade at a modest 6x EV/EBITDA, below historical averages, despite operating margins of 4-5% and strong cash flows. UBS’s $105 price target for United (up from $67) implies a 57% upside, while Delta’s $66 target offers 28% upside from current levels.

Budget Carriers’ Margin Meltdown: Why DAL/UAL Win

While Delta and United prioritize premium and international routes, budget airlines are stuck in a domestic price war. Southwest, for example, saw main cabin revenue drop 5% as passengers trade down to discount carriers. But this strategy has limits: Southwest’s pretax margin shrank to 1.2% in Q1, compared to Delta’s 4.0% and United’s 3.6%.

Legacy carriers’ network efficiency and brand loyalty—United leads in six of seven major hubs—create a moat. Meanwhile, JetBlue and Spirit face rising fuel and labor costs, with no premium revenue to offset them.

Act Now: Capture the Premium Flight to Outperformance

The case for buying Delta and United is clear:
- Premium demand is sticky, insulating earnings from macro downturns.
- International routes and loyalty programs generate high-margin, recurring revenue.
- Valuations are undervalued, with UBS’s targets signaling 28-57% upside.

Investors should act before Wall Street catches on. With tariff headwinds fading and premium segments thriving, DAL and UAL are positioned to outperform in any economic climate. This isn’t just a trade—it’s a bet on the airlines best suited to dominate travel’s next era.

The runway is clear. Secure your seat now.

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