An Airbus A330-323 aircraft, operated by Delta Air Lines.
Benoit Tessier | Reuters
Delta Air Lines is the country’s most profitable airline. CEO Ed Bastian’s challenge is to ensure that his carrier stays on top.
The airline’s unit revenue, the quantity it brings in for each seat it flies one mile, outpaced its competitors’ last yr. Delta’s share price has soared almost 23% in 2024, greater than any rival within the rocky airline sector, in a rally that is outdone the S&P 500‘s. It expects free money flow to rise as much as 50% this yr to between $3 billion and $4 billion, and is eyeing a return to an investment-grade credit standing. And a stat any traveler would appreciate: Delta got here in first in punctuality last yr, with greater than 83% of its flights arriving on time, based on the Transportation Department.
Rival United Airlines — second to Delta in net profit margins — is circling. It says it could grow profit much more this yr.
“Knowing that there is someone that thinks that they will take that mantle from us, that keeps us on our toes and keeps us continuing to drive hard,” Bastian told CNBC.
Ed Bastian, chief executive officer of Delta Air Lines Inc., during an interview in Latest York, US, on Monday, Nov. 7, 2022. Bastian said that he sees ‘strong demand’ for flights carrying into 2023.
Jeenah Moon | Bloomberg | Getty Images
Delta has fashioned itself as America’s premium airline. It has won over hordes of splurging travelers, lots of them carrying American Express cards, Delta’s money cow of a partner that generated almost $7 billion for the airline last yr. Sales growth of Delta’s roomier and costlier seats continues to outpace revenue from standard coach.
As they vie for luxury flyers, each Delta and United have added more high-end seating to their planes to cater to travelers who deem worthwhile a $300 surcharge for a couple of inches of additional legroom on a cross-country round trip, or 10 times as much for a seat in business class.
Bastian, a former auditor who said he took his first flight at age 25 for a business trip (Latest York to Chicago), is in command of ensuring Delta lives as much as its brand luster.
On Wednesday, Delta will take its next shot within the battle for high-spending flyers when it opens its newest, highest tier of airport lounge at Latest York’s John F. Kennedy International Airport for passengers in its Delta One cabin, its top product that features lie-flat beds for longer flights.
At greater than 39,000 square feet it’s going to be Delta’s largest lounge, accented with pillows which have the enduring zigzag motif of Italian fashion house Missoni, its recent amenity kit partner. It features complimentary spa treatments, like ice globes and serum for jet-lagged eyes, together with showers, a full restaurant, and a deck overlooking the airfield, in a bet that travelers’ desire to treat themselves is here to remain.
Delta is taking a page from the playbooks of United and American, which already dedicate their swankiest lounges to customers flying in long-haul business class. Delta plans to open Delta One lounges in Boston and Los Angeles later this yr, and is studying airports where it could open others.
“The thing with this industry is not any good idea goes uncopied,” said Raymond James airline analyst Savanthi Syth.
Meanwhile, United is placing huge orders for brand spanking new Boeing and Airbus planes and remodeling lots of of narrow-body cabins that feature seatback screens and Bluetooth technology, a technique that goals to cater to travelers in international business class or on the most affordable basic economy tickets.
“We’ve not exactly achieved the No. 1 profitability status within the industry, but I do know we’re on our way,” United’s chief industrial officer, Andrew Nocella, said in an interview last month. “If we proceed to speculate in our customers through great service and great products and great network, we all know that may feed upon itself and it will help us achieve the financial results that we’re on the lookout for.”
Delta, United and American are approaching their one hundredth birthdays, and try to remain ahead — if not drive — shifting travel demand and still turn a profit.
United is adding to the greater than 300 airports it serves. Determining the following hot destination is “part art” and “part science,” said Patrick Quayle, its head of network planning. The airline’s sprawling global network makes United the largest U.S. airline by capability and it recently launched service to places like Dubrovnik, Croatia, and Amman, Jordan.
Quayle pointed to United’s addition of Cape Town, South Africa, which it first announced before the pandemic, as successful.
“One other airline has subsequently copied us. … I’d wish to add based in Atlanta,” he said, alluding to Delta’s home city.
The newest changes come at a difficult time for a number of U.S. airlines. Labor and other costs swelled after the pandemic, eating into margins despite record numbers of travelers. Added capability within the U.S. market has forced carriers to discount fares in off-peak travel periods.
It’s tricky, and expensive, to alter course. Even Southwest Airlines is facing investor pressure so as to add things like premium seating or seat assignments as its easy business model shows signs of age.
Meanwhile, U.S. consumers are growing more selective: Some corporate leaders have lamented a spending pullback while others, like Delta’s CEO, are saying the alternative. Americans are still digging into the so-called experiences economy, and paying for more comfort along the best way, based on Bastian.
“They will not be buying that recent EV or that recent house, but they’re saying we will exit and experience the world and put money into that have,” he said. “And that is why you see it happening in high-end concert events, high-end hospitality.”
‘Brick by brick’
When the U.S. was careening toward recession almost 20 years ago, Delta’s leaders made an accurate bet that travelers would eventually pay more to fly on its jets.
Delta was emerging from Chapter 11 bankruptcy in 2007, which other U.S. carriers found themselves within the years after the Sept. 11, 2001 terrorist attacks.
Former CEO Richard Anderson said the airline had to begin with basics: Stop losing bags. Ensure flights didn’t get canceled and arrived on time. Clean up the cabins.
“It was about constructing the operation brick by brick,” said Anderson, who handed the reins to Delta’s former president, Bastian, in 2016. “It didn’t matter what you probably did with AmEx. If the flight canceled, you ruined your brand.”
Delta took higher care to avoid maintenance problems. It also began ferrying planes to airports to avoid cancellations if a alternative aircraft was needed.
And the carrier tried to scrub up its image, hiring a marketing firm that advised former President Barack Obama’s 2008 presidential campaign.
Anderson said the airline needed to be consistent and never fly its mixture of paint jobs and cabin interiors. It faced fresh competition from low-cost airlines like a then-spritely upstart out of Queens, N.Y. called JetBlue Airways. Delta and United had each launched their very own low-cost subsidiaries, but they discontinued them.
Delta executives knew they needed a brand to match in the event that they were going to command a premium over competitors.
“Certainly one of the things about being a premium product is consistency, consistency in policy, consistency in appearance,” said Anderson. “In case you got on a flight in Tokyo we wanted you to feel such as you were home.”
After the string of changes, Delta’s performance improved. Corporate business travel contracts helped boost profits and still do, as business travel returns post-pandemic.
Delta had a key advantage over competitors. After it got here out of bankruptcy, it merged with Northwest Airlines in 2008, allowing it to stabilize and expand world wide while other carriers floundered. The remainder of the industry spent much of the following decade recovering from bankruptcies and a subsequent musical chairs of mergers that left 4 big carriers accountable for about three-quarters of the U.S. domestic market. Delta’s rivals were years behind the carrier on integrating their merged staff, operations, networks and fleets.
Bastian said the carrier’s deal with reliability has made life easier for not only its customers, but additionally its employees.
“They are not having to clarify for a cancellation or mishandled luggage,” he said. “They’ve time to serve moderately than to apologize.”
Delta can be unique because the least unionized of the most important U.S. airlines, at about 20%. In April, as campaigns were underway to arrange its flight attendants and other employees, it again raised employee pay. Flight attendants for Delta’s regional carrier Endeavor, that are unionized, have recently demanded compensation on par with the carrier’s mainline flight attendants.
Time to transform
After Delta got the fundamentals down, Bastian, 67, who joined Delta in 1998, said it was time for the airline to deal with more ambitious projects.
“You had the freedom to begin investing in premium,” he said. “You began to work out easy methods to to make top notch more available to customers.”
It has expanded in big-spending Latest York and Los Angeles, the country’s two largest air travel markets by revenue, based on aviation data firm OAG.
Delta also built up its host of worldwide alliances, joint ventures and minority ownership stakes, giving it more reach. That features its 49% stake in Virgin Atlantic, which already had a robust foothold in premium air travel and popular lounges.
“I believe a few of that heritage has made its way into the core of Delta,” said Virgin Atlantic’s CEO Shai Weiss. “I’m not suggesting we’re the messiah for Delta, but there isn’t a surprise that Delta and Virgin Atlantic see eye-to-eye on many things.”
The overwhelming majority of the greater than 940 million people who flew on U.S. airlines last yr fly in coach, and Delta has tried to make its flights more desirable travelers on all sections of the plane.
It remodeled old and dated terminals, and built out its network of luxury airport lounges, that are tied to its lucrative bank card cope with American Express. It added seat-back televisions and higher in-flight entertainment options, and in February 2023, it announced its long-awaited free Wi-Fi to customers enrolled in its SkyMiles frequent flyer program.
Delta has invested greater than $12 billion to rebuild and update its U.S. hubs with soaring ceilings, recent technology and in some lounges, a signature scent. (“It’s proprietary,” said Claude Roussel, who oversees Delta’s lounges, when asked what was in it.)
Certainly one of its latest efforts is its terminal and recent Sky Club at Latest York’s LaGuardia Airport, alongside other airlines’ recent terminals. A decade ago, then-Vice President Joe Biden famously said someone who was blindfolded and brought to that airport would think, “I have to be in some third-world country.”
The airline faced big problems along the best way like a dayslong system outage in 2016. And the worst of all: Covid-19. Like other airlines, Delta accepted billions in federal aid to weather the pandemic. The carrier successfully urged some 17,000 employees to take buyouts, hiring newer, lower-paid staff that lacked the experience of departed employees. Early in the method, Bastian said the newer employees gave the corporate a “juniority profit.” The airline employed about 100,000 people within the U.S. as of the tip of last yr.
Delta and its competitors also pulled out of many small cities because the pandemic eased, isolating some smaller cities amid a shortage of regional jet pilots.
But international travel has proved resilient up to now, as consumers show they’re willing to shell out on experiences.
Luxury air travel? Within the U.S.?
Luxury air travel and the US didn’t go together for a few years — and won’t still, when you ask well-heeled globetrotters.
U.S. airlines don’t offer on-board showers or roomy suites like those on the superjumbos flown by the likes of Etihad Airways or Singapore Airlines. However the U.S. air travel market, the world’s largest, has gotten quite a lot of upgrades lately, and travelers have grown to expect the identical convenience they get from their online shopping sites and ride-hailing and food-ordering apps.
“Delta’s not bougie by any stretch, but when your competitors don’t try very hard, it doesn’t take much,” said Henry Harteveldt, a former airline executive and founding father of Atmosphere Research Group.
But as a rewards-credit card boom, strong consumer spending, social media envy and a wanderlust that predated the pandemic combined to spice up demand, airlines executives were taking notice.
Delta’s sales from premium products are growing faster than revenue from its most important coach cabin, a trend the airline forecasts will proceed. Sales from Delta’s loyalty business, premium cabins and other streams comprise greater than half of the carrier’s revenue.
Airlines have made big changes as they struggle to accommodate the big-spending travelers armed with elite status. Major carriers have all overhauled their frequent flyer programs to reward the largest spenders as a substitute of people who fly essentially the most miles, and made it harder to earn coveted elite status.
And at Delta and other airlines, lots of the perks for luxury flyers come through lounges.
Certainly one of Delta’s Sky Clubs in Los Angeles International Airport offers a separate, dedicated security lane for patrons flying Delta One, away from the masses on the airport. That feature will make it to the brand new JFK lounge later this yr, a Delta spokesman said.
United and American Airlines have also worked to glam up and expand their airport lounges, access to which is a typical perk with bank cards.
Delta softened some restrictions on Sky Club lounge access last yr — which it made to finish annoying and unsightly long lines to enter its exclusive airport real estate — after an uproar from customers.
‘We’re continually pushing one another”
Each Delta and United have issued sunny financial forecasts for this yr, while many carriers are losing money or not pulling in similar profit margins.
“Watching [Delta] succeed, I became convinced that the product mattered and repair mattered, and we have now done that at United now,” United CEO Scott Kirby said at a JPMorgan industry conference in March.
And at an investor conference last month, he pointed to how the 2 are pulling away from the remainder of the pack in profitability, particularly at big hubs.
United has made some big bets that paid off. It held onto its wide-body planes, when travel demand collapsed within the pandemic, and has benefitted from the surge in international travel.
With United on Delta’s tail, Bastian is attempting to expand the airline’s reach. Bastian has attended the large Consumer Electronics Show in Las Vegas and has announced recent partnerships with Lyft and Starbucks for its loyalty program.
He says he cannot mystery shop on other carriers because he’s too recognizable, but said his team flies on competitors recurrently to see what they will improve.
“We do not own the market rights to innovation in our industry,” he said.
When asked what Delta can improve, Bastian threw kudos back to United for its detailed messages to travelers when there is a disruption.
“They’ve done some nice things with their app,” he said. “I still think ours is healthier, but … they’ve done a pleasant job in terms their communications with their customers and the way they manage trip interruptions.”
Bastian added: “We’re continually pushing one another.”
