Delta Air Lines Seeks 'Crown Jewel' for New York-JFK Hub: Nonstop Flights to London

[WorldTraveler]

• DL’s costs will go down as their TATL expansion takes hold and their average stage length will go down. Using current data, though, DL does enjoy an advantage.
• I do know stage length adjustment is not a linear process. After several lengthy paragraphs on the subject, we still don’t have a definitive answer.
• Many of DL’s lease and debt renegotiations did not make the 1Q06 cutoffs. While I don’t know the total impact, UA’s over $1B on those two items should provide a major boost to DL.
• We have differing opinions of whether LAX or SFO is a hub for AA. I’m not falling on this sword. If you want to call it a hub, fine. DL did not refer to JFK as a hub prior to this year. It was a transatlantic gateway. Given the lack of focus on expanding it, it shouldn’t be any surprise that it languished. DL builds hubs very well. They don’t do quite as well w/ gateways. Perhaps all of their future int’l service will be from hubs – which they can designate to be in any city they deem to have enough connecting service.
• Ultimately, every decision in a business has to be traced back to profitability and protecting shareholder value. It’s hard to tell the shareholders that you took an action which is value negative but which has strong emotional support by executives or the company’s history.
• Of course, low cost doesn’t equate to profitability if revenue doesn’t follow. DL has consistently said that their unit revenue comparisons are now very close to the rest of the industry as compared to deficits for along period of time. And industry revenue comparisons are done by the ATA so they calculate everyone’s adjustments the same. Let’s see what the next quarters numbers show in about a week and we’ll see but data released so far indicates DL is closing the revenue gap at the same time that costs are dropping.
• Of course LFCs operate in DL’s markets. But FL isn’t and can’t grow in ATL because there are no more gates. That’s why they are growing other cities. They have grown very little in ATL as a percentage of their overall growth. WN has grown very little in SLC for decades.
• NYC is a large LFC overlap market but DL has obviously right-sized capacity and increased connections to improve local yields. B6 has done the same thing so apparently both carriers recognized the shootout was hurting both carriers.
• DL’s LFC situation is quite a bit different from UA’s where WN just began operations and IAD where they have not even started. When WN starts DEN-MDW and IAD-MDW as first routes, they are taking a major shot at UA. I hope your execs don’t avoid it because it could have severe detrimental effects if WN is not seen as a threat to UA.
• US’ hubs and focus cities continue to be attacked by multiple LFCs.
• Yes, UA has defied many analyst predictions and I commend you and other UA employees for working to stave off the death sentence. But the threats keep coming. We’ll see if UA can keep them at bay. I post what I believe… but I have a bias and it is well known.
• Jetz, unless you want to post non-public info and risk the SEC wrath that comes with it, if it isn’t publicly available, it isn’t fact. You and fly take this way too seriously. Take your blood pressure and then use your brain. If you’re smart enough, you can come up with a cogent argument even if people don’t agree with you. We all know that data and information sources can be used as we wish to shape the arguments we want to win – or at least continue. Fly of course is just reporting to her vulgarity and name calling since she doesn’t/can’t post any intelligent rebuttals.
• You and many other UA supporters have said DL would not successfully emerge. So death prophecies have been widespread and clearly overblown.
• Your assertions that DL will fail at JFKLGW are completely subjective because there is no evidence of a network carrier from either the US or the UK that has operated on the route without also operating on JFKLHR. As much as we all want to make our arguments, we all have no choice but to wait and see how it works out.

 

[JAMAKE1]

Correct, indeed, Jim. LAX won't become a hub until the spelling is changed to all caps. Tell your fellow colleagues. I wouldn't want you guys to work any harder than you already do...


P.S. Please ensure that thru-flight cabin cleanings are performed in Boston. It's an official AA (all caps) hub!

 

[Cosmo]

I respect Cosmo for his analytical ability and have told him so.

Aw, shucks, you guys are making me blush! B)

Making it more challenging is the much higher levels of LFC competition that UA will face in the next year.

As TechBoy noted, you apparently have little respect for the competitive capabilities of AirTran and JetBlue who are offering significant LFC competition at Delta's hubs in Atlanta and New York/JFK, respectively. And JetBlue in particular is going to make Delta's life miserable at JFK as it expands not just domestically but also into the Caribbean and Mexico. You only have to read what is widely considered to be a nasty and insulting (to both Jetblue and the DOT) objection to the DOT's recent award of JFK-CUN authority to JetBlue instead of Delta to understand just how threatened Delta believes itself to be at JFK.

Moreover, it appears that your whole premise is wrong. In the second quarter of 2005, before Southwest (re)started service to Denver, United recorded an operating profit of $48 million. But in this year's second quarter, with Southwest now flying in several Denver markets (all served by United), United achieved an operating profit of $260 million. One can only imagine how much more profitable United will be in next year's second quarter with Southwest serving Washington/Dulles. Ain't straight-line extrapolation fun?

The NYC transcon markets are good examples of the difficulty UA has had in maintaining a presence in the NE markets.

And you don't think that the arrival of Virgin America will have a greater impact on Delta than United in these markets given the types of passengers that each carrier is (or will be, in Virgin America's case) targeting as evidenced by each carrier's aircraft configuration?

 

[Cosmo]

• DL’s costs will go down as their TATL expansion takes hold and their average stage length will go down.

I'll assume that's a typo and you really meant that Delta's systemwide average stage length will go up. But the real issue is whether or not these added flights will as a whole be profitable on an annual basis for Delta because, if not, lower unit costs and longer average stage lengths won't mean very much. And we won't know the answer to this for a while.

• Ultimately, every decision in a business has to be traced back to profitability and protecting shareholder value.

So I assume that you believe that this criterion applies with equal validity to United's decisions to sell its New York-London traffic rights to Delta and move its JFK-NRT nonstop flights to IAD-NRT as it does to Delta's decisions to close its DFW hub and significantly reduce the level of its operations at its CVG hub?

• Of course LFCs operate in DL’s markets. But FL isn’t and can’t grow in ATL because there are no more gates.

That's only until ATL's South Gate Complex (with approximately 30 new gates) opens within the next five or six years or so, according to ATL's updated master plan. So while more gates for AirTran is not an immediate threat to Delta, it is on the horizon.

And BTW, hasn't Delta's ATL operation not only not grown recently, but actually decreased in size, at least on an ASM basis, as some widebody aircraft moved to JFK and other aircraft (B767-200s, B737-300s and B737-200s) were retired?

• DL’s LFC situation is quite a bit different from UA’s where [in DEN] WN just began operations and IAD where they have not even started.

This is just another one of your "Delta is great and United sucks" pontifications, with no factual basis beyond Southwest being United's primary LFC competitor while AirTran and JetBlue filling that role for Delta. It's merely your opinion and nothing more.

• Jetz, ... if it isn’t publicly available, it isn’t fact.

That unadulterated nonsense and you know it. A fact simply doesn't change based on whether someone knows it or not. To paraphrase that great philosopher (and seller of chickens!) Frank Perdue, "Facts is facts!"

 

[artiefufkin1]

Well I agree the 58% lower adjusted CASM does not reflect the real costs. From 600 mile stage lengths to 1100 you might have a real case 1 cent drop. From 1100 to 1700 maybe 1/2 cent. Also I didn't have stage length so I was using Length of Haul, which most carriers do anyway in their presentations. So in reality it's more like 20% which is substantial.

Boilerplate respects to Rasm and margins which is another matter I was not speaking to.

Hi Artie-

That statement really interests me. When UAL officially released its numbers for 2Q06 today, I started poking around the latest data for both DAL and UAL that was available for both airlines (1Q06) and came up with the following numbers. Granted, they're system wide averages, but here they are......

CASM 1Q06
DAL 11.12 Mainline/12.15 Consolidated
UAL 11.43 Mainline/12.11 Consolidated

They seemed pretty similar so I started looking at the DOT Form 41 data for individual aircraft at both airlines (unfortunately the most recent data is three quarters old) thinking that maybe DAL had an ace in the hole with a particular aircraft that was really cheap to operate but didn't see any significant advantages there, either. Or at least none that would equate to a double digit advantage.

Just curious as to how the 42% adjustment was derived from for UAL and the 30% for AMR?

Thanks,
ualdriver

Sorry I missed this earlier. No problem. I used the Q2 reports from AMR/UAL and I guessed at Delta's June CASM seeing that they expanded ASMs 10% that Month over May when much of their scheduled was realigned.

 

[superG]

[quote
And you don't think that the arrival of Virgin America will have a greater impact on Delta than United in these markets given the types of passengers that each carrier is (or will be, in Virgin America's case) targeting as evidenced by each carrier's aircraft configuration?
[/quote]
VA will affect not only DL, but AA/UA/JB as well..maybe even UA to a greater extent as Virgin's home base of SFO will certainly erode some of UA's dominance there, when/if they ever get off the ground.

 

[WorldTraveler]

NO one doubts the impact B6 and FL have on DL’s network but neither are growing to the extent they once were. Five years in the airline industry is an eternity so I don’t think DL is too worried about growth from FL then. In the meantime, DL can grow international because there are still gates available to do that. As for JFK, it is obvious that B6 and DL both learned valuable lessons about engaging in bloodletting competition and will likely both manage to co-exist. Despite FL’s presence alongside DL, they have managed to co-exist to their mutual benefit. As DOT route information becomes available, I think that will be confirmed.

I will continue to assert that having a stable LFC in your marketplace is far different than having a new one set up shop. Fares in IAD will change in hundreds of IAD markets the day WN sets up shop. UA can either lower their fares and attempt to keep WN small – at considerable expense to UA since they are flying on some very key UA routes – or WN will continue to grow as they have in PHL where US gave a half-hearted attempt at matching fares, only to spur WN on to more growth. BTW, did you notice that DL is moving locations at PHL which in part allows WN to further grow?

Virgin will certainly impact every airline that plays in those markets. We don’t know what routes Virgin will fly but they say they will be a SFO based airline. DL flies one NE transcon route from SFO, the other end of which ends on a strong transatlantic hub. UA could offset Virgin’s impact because of its transpac hub. But if Virgin starts north-south flying or intra-west flying from SFO (very possible), UA will largely take the hit. Which makes you wonder why CO is fixating so much on VS.

As always, the airline with the highest costs always is hurt the most by a LFC competitor when everyone has to offer comparable fares. UA’s costs are the problem, not its ability to attract good revenue. I would be a lot more comfortable with UA’s future if its costs were a lot lower. No matter how you slice it, though, UA is on the upper end of the cost range for network carriers. While UA can get some costs out, everyone else is doing the same thing also. A cost disadvantage can be sustained better in good times but when the bottom falls out the highest cost producer is most impacted.

Yes, Cosmo, you catch in bold is a typo. Unit costs go down as stage length increases which DL is doing. Thanks.

I am not denying that UA did the right thing from a profitability standpoint. The point is that they couldn’t make NYC int’l work. No airline can make everything work but is a lot harder sell to the business community to pull service you once had than to have never operated it. But when UA asserts that it can live with the hole in its route system because it will find a merger partner that will correct it in time, I’m not convinced UA is doing everything it can to remain independent in every area of the company.

If you want to persist in asserting that UA had plans even though they weren’t made public, then I’ll call BS on the same basis you asserted that my predictions were wrong because eventually I would get one right. In a binary decision such as whether a POR exists in bankruptcy, the chances of eventually getting it right are 100% unless the company moves to Chapter 7. The point is that you are making a statement based on non-public information which is illegal since this forum is not covered by any Safe Harbor provisions. I am not going to go there. If you want to reveal UA’s non-public information, go for it and face the consequences. Labor unions receive a great deal of non-public information which they are to use in working with the company to advance their mutual interests. I will wait for publicly available information and work from there or make estimations which I will disclose as such.

 

[ualdriver]

As always, the airline with the highest costs always is hurt the most by a LFC competitor when everyone has to offer comparable fares. UA’s costs are the problem, not its ability to attract good revenue. I would be a lot more comfortable with UA’s future if its costs were a lot lower. No matter how you slice it, though, UA is on the upper end of the cost range for network carriers. While UA can get some costs out, everyone else is doing the same thing also. A cost disadvantage can be sustained better in good times but when the bottom falls out the highest cost producer is most impacted.

CASM 1Q06
DAL 11.12 Mainline/12.15 Consolidated
UAL 11.43 Mainline/12.11 Consolidated
AMR 10.81 Mainline/? can't find it and don't have the time to look for it!

First of all, before you get all excited and see AMR's CASM vs. UAL's CASM (and DAL's for that matter) and say, "see, look, they're much cheaper!" remember the denominator of the that little CASM ratio. We have economy plus, they don't (and neither do you guys for that matter). My little 737 alone is missing a couple of rows of seats, or around 10% (+/- a percent or two, I don't know eactly) of its seating capcaity because of economy plus. Add 10% back to the denominator of the "cost per available seat mile" equation (simply using the 737, I realize that it's not 100% accurate) and you're looking at an adjusted CASM for UAL below AMR and DAL's 1Q numbers (roughly 10.4ish if one uses 10%). Someone posted a while back that economy plus adds about .5 cents to UAL's CASM vs. someone like AMR and DAL. After playing with some CASM ratios (too numerous to post here but you can do it yourself and see), I think that economy plus cost disadvantage is around 8%-9%. In other words, (in my opinion) if UAL wanted to drop economy plus tomorrow, CASM would drop several tenths of a cent. When Tilton says our costs are competitive, I think this kind of adjustment has to be made for an apples to apples comparison, just like one would adjust for stage length, type of aircraft flown, etc. In my opinion, our raw costs above are higher simply because we have economy plus and they don't. That's how I'd "slice it."

Like I posted before WT, DAL had OVER a 10% stage length adjusted cost advantage over the likes of UAL (and AMR for that matter) before this industry went up in smoke at the turn of the century and they STILL ended up in bankruptcy. So when you keep asserting that UAL has the highest costs in the industry and therefore we're screwed, I wonder of the fate of an airline like DAL. Here's an airline that had a pretty big cost advantage in the 1990's to 2000, has had years to watch airlines like UAL and US Air go through bankruptcy and learn from their mistakes, has had the benefit of a much vanuted "transformation plan" and now has had some time in bankruptcy and they haven't even managed to regain that 10% cost advantage that wasn't even wide enough to keep them out of bankruptcy in the first place. Never mind widen that cost advantage gap which DAL should be doing because, "DAL is doing a dramatically better job and has done more in bankruptcy than any other airline." So far, I'm not seeing it in the numbers. Unfortunately, I don't think I will ever see it, either.

So right about now you're thinking to yourself, "but we aren't even out of bankruptcy yet, so costs will continue to decline." Well, on numerous occasions, you've boasted that DAL employees will be able to keep their pensions and are still paid more than their counterparts at UAL. Well, that's great and I'm happy for those DAL employees. But there's a problem for DAL if I take your words to be true and they're going to continue to cut costs.

Fuel and labor are about 47.1% of DAL's total costs, and it looks like they're going to need to cut about a cent off their total CASM to restore that year 2000ish advantage. They can't cut fuel, they're not going to cut labor anymore and in fact, if what you write is true, DAL's labor costs per ASM might come out a little higher than expected. With 47.1% of DAL's total costs tied up in those two things alone, they're going to have to find some significant cost cutting in the remaining 53% of their costs. And they're going to have to cut costs not only to regain their previous cost advantage, but also to make up for the potentially higher labor costs, since DAL employees, in your words, will make more than their UAL counterparts, for example. That's a pretty tall order, especially with the clock ticking for an '07 exit.

I've read that DAL plans to exit bankruptcy by the first half of next year. I know it takes about 6 months to "put together the paperwork" for a bankruptcy exit, leaving DAL about 5 months to knock 10% of its costs, without the great benefit of using fuel and labor (its highest costs), in order to even restore the cost advantage they once enjoyed that couldn't even keep DAL out of bankruptcy in the first place. I don't know, WT. The more I play with numbers, the more this rose is losing its bloom.

Keep in mind as I write the above that I don't even necessarily agree that one airline enjoying a "few tenths" of a cent advantage over another is necessarily a big deal in the grand scheme of airline things. I'm just using your logic, WT.

If you want to persist in asserting that UA had plans even though they weren’t made public, then I’ll call BS on the same basis you asserted that my predictions were wrong because eventually I would get one right.......Labor unions receive a great deal of non-public information which they are to use in working with the company to advance their mutual interests. I will wait for publicly available information and work from there or make estimations which I will disclose as such.

No, I didn't have inside information, and I doubt anyone else on this board did either, about UAL's POR. If I did, I certainly wouldn't post the information here as I'm sure prison mattresses are quite lumpy and I surely don't like to spoon with large, sweaty, tattooed males. Not that there's anything wrong with that if one chooses such endeavors. But I digress. The point was that common sense dictated that a POR existed before it was publically released AND while you were saying that UAL didn't have an exit plan. Let's agree to disgaree.

Further, I know for a fact that we had exit financing even after you kept claiming we didn't. I remember because I got tired of you posting that we didn't have exit financing, so I dug around on the Marketwatch site for about 15 minutes to find the link that showed that we not only had exit financing lined up, but also had specific banks providing the loan. I remember that even after I posted the specific link that you still kept posting that UAL didn't have exit financing, after which I gave up discussing the topic.

 

[artiefufkin1]

There's really no need for all of this.

UA 2Q correcting for special charges, hedging, and taxes had a 1.8% net margin compared to LCC at 6.2%, LUV at 5.8%, CO at 3.8%, AA at 3.6%.

That's piss poor considering they had all that time in Chapter 11 to get things. Is there anything going on internally at UA to change this?

I guess not since their non-fuel CASM went up from last year.

 

[ualdriver]

There's really no need for all of this.

UA 2Q correcting for special charges, hedging, and taxes had a 1.8% net margin compared to LCC at 6.2%, LUV at 5.8%, CO at 3.8%, AA at 3.6%.

That's piss poor considering they had all that time in Chapter 11 to get things. Is there anything going on internally at UA to change this?

I guess not since their non-fuel CASM went up from last year.

Easy there, Artie. Don't worry, your buddy WT has thick skin. You're new to these boards and I think if you knew anything about what I've posted in the past, I certainly wouldn't hold out UAL as any sort of shining example of a thriving, profitable business. That holds true for AA, CO, NW, and certainly DAL. I wouldn't invest one nickel in any of them. That's why I find WT's posts so amusing. It's kind of like a passenger of the Lusitania giving a guy on the Titanic the finger as they sail past each other.

We recently received an e-mail from Tilton that had all kinds of financial data, including this tidbit:

Our cost performance is also hampered by the fresh start and exit-related charges I mentioned earlier. Excluding these non-cash items and the $22 million in severance costs, our non-fuel CASM for the second quarter dropped by 1.6 percent from the second quarter of 2005.

I'm not sure what time frame you were looking at as far as non-fuel CASM goes? I wouldn't be surprised if it was in the 1-2% range. And I'm sure you understand that you can't look just at unit costs without looking at unit revenue as well. For whatever the time period you're looking at where you said our non-fuel CASM went up, how much did our unit revenue go up?

Are we doing anything internally to change this? Yeah, but I don't know how it will ultimately affect the bottom line. They say they've started another initiative to cut 400M/year in costs in addition to the cost cuts they've announced earlier. They're laying off 1,000 additional salaried and management personnel as we speak, over and above our original POR. They're shifting aircraft to places where they'll make more money (hopefully) like the Pacific. They're reducing hub turn times hoping to squeeze more ASM's out of the same number of aircraft. They're introducing new international premium products (i.e. redoing the business and first class cabins) which supposedly will increase revenue in our premium markets. I'll believe it all when I see it on UAL's bottom line. Does that answer your question?

 

[FWAAA]

We recently received an e-mail from Tilton that had all kinds of financial data, including this tidbit:

Our cost performance is also hampered by the fresh start and exit-related charges I mentioned earlier. Excluding these non-cash items and the $22 million in severance costs, our non-fuel CASM for the second quarter dropped by 1.6 percent from the second quarter of 2005.

For 2Q2006, UA's mainline CASM (ex-fuel, fresh start and severence charges) was exactly the same as AA's mainline ex-fuel CASM: 7.41

And UA's yield was up substantially; it now trails AA's yield by only about half a cent. During 2003-04, UA's yield was a full two cents less than AA's.

UA has made vast improvements.

 

[artiefufkin1]

Well I read this from their 2Q report

********************

CASM increased by 9 percent from the year-ago quarter, primarily driven by a 27 percent increase in mainline fuel prices. Excluding fuel, a $22 million one-time severance charge related to the company's previously announced manpower reductions and a special item recorded in the second quarter of 2005, mainline CASM was 7.64 cents, an increase of 1.5% compared with the second quarter of 2005.




Mainline
Consolidated


2006
2005
% Chg.
2006
2005
% Chg.

CASM (cents)
11.43
10.50
8.9
12.11
11.26
7.5

CASM ex fuel (cents)3
7.64
7.53
1.5
8.14
8.14
-

3For Mainline and Consolidated, also excludes UAFC, a one-time severance expense and special items

**********************************

But that did include the non-cash charges due to fresh start accounting (whatever that means) so it would have gone down 1.6%.

So that would be my mistake for not seeing that.

And as far as revenue going up. It's primarily for macro reasons. More demand, less capacity, etc. What I like about costs is that they are more controlable and low costs help you in good times and bad.

Premium this and that, and on time, and customer service awards are overated. IMHO. Give me a airport with barriers to entry anyday...LOL

 

[Fly]

UAL Driver,

Artie IS WT.....he's thick something....he'll be fine.

Here is WT/Artie's ONE fear....that UAL will possibly merge with anyone except DELTA. He flys UAL if DAL can't cover him. He's nothing more than a typical MP who only thinks about himself. Think about it....when was the last time you went to the grocery store and started harrassing the employees? Probably NEVER....but there ARE weirdos who thrive on this stuff. So throw him a bone once in a while, he flys United when Delta can't (hmmm,...that's ASIA).

 

[NewHampshire Black Bears]

World Traveler,

You keep "insisting" that 3 legacy's will remain(AA/CO/DL)

If CO "partners" with UA, WHO-in-HEL* is DL gonna' partner with ???


Remember, we ALL are waiting for your reply !!
(Try NOT to make an ASS out of your self with your answer)




????????
(We're WAITING)

NH/BB's

 

[ualdriver]

UAL Driver,

Artie IS WT.....he's thick something....he'll be fine.

Interesting. I never really thought about that. Actually now that you've said it, that might be true. Hey Artie, are you really WT or do you just know WT? If you do know WT, who is he? Do you work with him? I suspect WT is a Delta Airlines middle manager trying to work his way up, even though he states otherwise.

I tried to like Spinal Tap, but the only part of the movie that I liked was when Spinal Tap was in decline and on the sign outside their venue it said, "Puppet Show and Spinal Tap." They couldn't even headline for a puppet show. Now that was funny.