Viewpoint

Delta Chiefs On Yields And Regional Restructuring

Yesterday (April 23) Talking Point discussed Asia’s status as the most competitive airline market in the world, pointing out that the region’s advantage over Europe and North America was due in some part to consolidation and airline failures in those markets.

More competition means lower prices, classical theory runs, but in the United States it seems the reverse hasn’t occurred, since yields have remained low despite mergers and a shake-out of unprofitable carriers.

Although year-on-year domestic yields were up 4.5 per cent in yesterday’s Delta Air Lines 1Q 2013 result, one analyst asked why there hadn’t been a larger long-term rise.

“If I'd been in a coma for the last seven years and I woke up to find America West, Northwest and Continental to no longer be part of the landscape, I'd expect a truly firm pricing environment,” said JP Morgan’s Jamie Baker.

“But we just don't seem to be seeing it. Is there something fundamentally different about airlines as opposed to other areas of travel spend that explain why pricing isn't more inspiring?”

The response from Glen Hauenstein, EVP revenue management at Delta, was that US majors were still piecing together their various mergers, and that during the process plenty of pricing departments were still in play, even if they operated under nominally unified brands.

“I think we will see a much more robust environment in the future… but all of this rearrangement and all of the realignment of capacity … hasn't taken place yet,” Hauenstein said.

One of the biggest restructurings within Delta is its regional flying segment, where it replaced a capacity purchase deal with Comair for a new one with Pinnacle. Richard Anderson, CEO of Delta was eager to emphasis the advantages of the new deal, which he promised would give Delta a “significant competitive advantage” in the regional market.

“We have fixed the scale and cost issues that have plagued the regional carrier industry,” he claimed.

Within two years, Anderson expects Delta to be offering a similar amount of domestic capacity but with up 300 fewer aircraft, largely due to a transition away from 50-seat jets to larger, more fuel-efficient models.

First-quarter profit at Delta was $85m excluding special items, and the airline recorded a $22m loss at its Trainer oil refinery.

The results also included a rare insight into current rates for Heathrow’s much prized lots: Delta paid $47m for two pairs of slots.

TAGS: Operations
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