Delta Air Lines Stock (DAL) Sinks as Checked Bag Fees Rise

Delta Air Lines (DAL) stock is down 2% on April 7 after the carrier announced that it is increasing the fees it charges for checked bags and luggage.

The Atlanta-based airline announced that it is increasing its fees for checked bags on domestic and select short-haul international routes as it tries to offset the costs of jet fuel, which have been rising due to the war that is raging across the Middle East.

The increase is the first domestic baggage fee hike by Delta Air Lines in two years and follows a similar move by rival United Airlines (UAL). Carriers large and small are struggling as crude oil prices top $110 per barrel, significantly raising the cost of jet fuel.

Margin Squeeze at Airlines

Airlines worldwide say they are facing sharply higher fuel prices, which have driven up operating costs and squeezed their profit margins as the war in Iran disrupts crude oil shipments through the Strait of Hormuz, a key shipping corridor between the Middle East and Asia.

In a statement, Delta Air Lines said that fees for first and second checked bags on bookings made on or after April 8 will increase by $10 each, while the cost of a third checked bag will rise by $50. The fee for a first checked bag will be $45 going forward, while a second bag will cost $55, and the third will cost $200.

Is DAL Stock a Buy?

Delta Air Lines’ stock has a consensus Strong Buy rating among 18 analysts. That rating is based on 17 Buy and one Hold recommendations issued in the last three months. The average DAL price target of $80.53 implies 23% upside from current levels.