More MEM cuts

[WorldTraveler]

as emotional of an issue as MEM is right now, let's remember that DL's roots are along the Mississippi River. They know the MEM market well and knew it long before it was a hub for NW.
Let's remember that NW used some of the same DC9s that DL retired and used in the SE.

DL also knew the CVG market since at one time it was divided between AA, DL, and TW until DL turned into a hub.

It is disappointing to see the MEM market not able to support more service but DL's responsibility is to generate profits. What worked at one time in MEM when fuel prices were lower doesn't mean the market will work now. There was an era when the 50 seat RJs made money but that day is gone.

Part of the growing difference between DL's network and that of other carriers is that DL is leading the reduction of 50 seat RJ flying and shifting flying back to mainline. that change necessarily means that some markets won't work anymore but also means that DL will deliver what passengers and investors want and do so with the economies of scale that large mainline fleets and strong hubs can provide.

 

[737823]

What are the chances WN or another carrier enters BOS/DCA-MEM? WN seems the most likely candidate but doubt they would blow a DCA slot pair(s) for MEM especially with DAL coming online next year. Doubt B6 would enter MEM, even BNA failed for them so MEM doesn't stand a chance. But again MEM has among the lowest median incomes and highest crime rate among MSAs and weak O&D market.

Josh

 

[WorldTraveler]

WN may well add more service to its hubs, likely including DAL when they can, but they see the same data that DL sees... or if there is more that DL is not seeing, DL is making a big mistake - and they haven't made many strategic mistakes since coming out of BK.

You can look at CVG and see that DL still has 70% of the market and there is only a smattering of low fare competition there. DL correctly judged the size of the market. As 50 seaters are removed from the fleet, CVG is likely to see fewer flights but on larger RJs ... but low fare carriers have to compete largely with full size jets so small markets don't work any better for them than they do for network carriers.

 

[737823]

BOS-CVG sees traffic from Gillette/P&G and they even run daily mainline 738/320 I doubt there will be many changes in the short term at least. And with the consolidation at CVG it is even better with all the flights leaving from B concourse no more bus rides to remote Comair terminal. The business community and fundamentals at CVG are much stronger than MEM and they don't have crazy politicians who slam DL, at least publicly. And didn't DL recently introduce the new bE product and AVOD in Y on the CDG flight?

Even in the glory days pretty sure MEM was mostly RJ flying at least from BOS, maybe a fee DC9/319 but my recollection was mostly RJs

Josh

 

[AdAstraPerAspera]

DL is going to have to buy new airplanes sometime. They can't fly MD-88s, 767s, and high-cycle A320s forever.
(well, maybe the 88s, lol)

 

[WorldTraveler]

yes, you are right... they have 130 new 739s and 321s plus 10 new 330s on order right now... they just happen to be able to find enough used aircraft to meet their greatest fleet replacement needs.

And there will be more global airline failures worldwide which means the number of aircraft that are on order will not all be needed.

remember that by this time there was the expectation that there would be hundreds of 787s in service and many older widebodies would be retired but that hasn't happened because of the 787s problems. When the 787 finally starts being deployed with reliability, a lot of aircraft will be removed from service and aircraft values will plunge. That could not only affect the value of a lot of new aircraft that have been bought with debt but also could provide a lot of opportunities to buy higher quality aircraft used aircraft - perhaps like 772ERs at low prices.

DL clearly does not believe it needs to make a decision to start spending tens of billions of dollars to replace its widebody fleet at this time.

And let's also not forget that the DC9 will finally be retired with some aircraft having been in service for 30+ years. The McD D family of aircraft are highly durable and the M90s and 717s have engines that have comparable fuel burn to current generation aircraft.

specific to this topic, let's also remember that there is a certain merger case being decided in Washington. While the routes might needed to have been cut, it doesn't hurt to trot out the cuts now if the intent is to maximize the divestitures that might need to be made.

 

[Glenn Quagmire]

When the 787 finally starts being deployed with reliability, a lot of aircraft will be removed from service and aircraft values will plunge.

Really?

You are a "hobbyist" airline business analyst, fuel hedge expert, refinery expert, and now an expert on the new airliner market?

I am sure you have data to back up your quoted claim above that "a lot of aircraft will be removed from service and aircraft values will plunge".

I am also sure you will point out to all of us simple minded folks how Delta will use this to their advantage and run over the rest of the industry.

Even for you, this one is over the top.

 

[WorldTraveler]

you are the one that called yourself simple-minded, not me.

If I am the first one to tell you that the effects of deregulation around the world are going to claim even more airlines than has happened already, then I'm glad you are finally waking up to the reality. There are many countries on the planet that continue to believe they can support at least one and sometimes 2 or more int'l airlines.

Factor in that DL is one of the few largest global airlines that is NOT ordering int'l aircraft by the dozens if not hundreds and it shouldn't be too hard to figure out that there will be way more aircraft than are needed for an industry that will consolidate.

How many 787s were supposed to have been in-service by this point if Boeing had delivered a quality product on-time, Glenn?
How many of those 787s were intended to be growth aircraft?

Airlines are holding onto their older-technology aircraft until the 787s are reliably in-service.. but by the time that happens, 350s and new generation 777s will be coming online by the hundreds. Hundreds of widebody aircraft will be retired over the next 5 years.
If you think they will all be sold for current values, then I would like to be the counter-party to your aircraft financing transactions.

There will be a significant decrease in the value of current generation aircraft that will require that current operators either write off hundreds of millions of dollars in value and/or pay down their mortgages to match current values of those aircraft.

And when that happens there will be airlines like DL who will be able to move into the market and either buy gently used aircraft (by US carrier standards) or buy new aircraft at greatly reduced prices because the manufacturers will be competing with a huge glut of used aircraft.

There is a reason why DL is not making long-range aircraft buying decisions now and it will become very obvious to you why in the next few years. At the same time, AA and UA will be locked into tens of billions of debt for aircraft that are not generating the advantages they thought they would when those planes were ordered. Investors and employees will pay the price for those shopping sprees.

If you haven't figured out by now - and in your haste to be unable to acknowledge what DL does well while simultaneously looking for an opportunity to discredit me - DL thrives on zigging when other carriers zag and v.v.

You don't really think that there is a free lunch, do you? Do you really think that AA and UA can win against DL when DL has tens of billions less debt on its books which translates into hundreds of millions of dollars in extra debt payments per year?

I'll be here to see who was right and who was not. otay?

 

[WorldTraveler]

BTW, since you brought up the refinery, here is data showing that DL's purchase of the refinery has been a key part in pushing down the price of jet fuel prices by lowering the jet fuel crack spread which was well above diesel fuel before the refinery was purchased by DL. Increased supplies have pushed down prices; that is exactly what supply and demand laws are about.

Jet fuel supplies in the US are at higher levels than have been seen in decades and DL is producing half of the increased capacity in the market. If other refiners start winding down production of jet fuel in order to boost their profits, DL has a higher percentage of its supplies locked up at the refinery.

DL's fuel prices would be much higher if the crack spread was what it was a few years ago. Even if DL has not gained all of the benefits of the lower prices solely for DL, since the rest of the industry is benefitting as well, DL has lowered its costs and has seen lower fuel costs than several of its competitors in the most recent quarter.

Note that the percentage of expenses on fuel for DL is 5% or more less than some of DL's competitors.

http://www.bloomberg.com/news/2013-11-08/southwest-to-united-boosted-as-jet-fuel-price-rally-fades.html

http://www.fool.com/investing/general/2013/11/08/delta-air-lines-hitting-on-all-cylinders-despite-h.aspx

I was one of the few people who could see the logic behind what DL was doing and yet few people have been willing to come back on here and acknowledge that.

On the revenue side, DL noted that its domestic revenues are 112% of the industry average. That means for every $1 in domestic revenue that other carriers gain, DL gains $1.12. That is a phenomenal premium.... and has only grown since DL launched its buildup at LGA and as WN pulled back in ATL, a move I expected they would do yet other were convinced would never occur.
Even in the Atlantic and Pacific entities, DL's revenue premium per seat mile is above the industry average.
DL's only region where it is below average is in Latin America where it is the 3rd largest of the big 4 (since US does fly to S. America as well as Central America and the Caribbean now). DL's Latin America region is smaller than any of its other regions by a significant margin.

Just as DL continues to build its presence in California, DL will continue to focus its attention on Latin America and in growing its position such that it can obtain higher quality revenues.

So, yeah, DL is doing what it needs to do to have the most complete network in the most significant markets around the world and they are doing it while running an outstanding operation and a financially strong company.

For those who want to look at the industry objectively, it isn't hard to see why DL is succeeding as well as they are - costs are below its competitors, revenues are above, and employees are on the company's side far more so than at other airlines.

 

[eolesen]

as emotional of an issue as MEM is right now, let's remember that DL's roots are along the Mississippi River. They know the MEM market well and knew it long before it was a hub for NW.
Let's remember that NW used some of the same DC9s that DL retired and used in the SE.

Geez, what a series of dumb statements.

Flying crop dusters with the occasional passengers in the pre-WW2 days 400 miles south of MEM is hardly relevant. It's like trying to claim that AA knows more about NYC than anyone else because it was once headquartered there...

And "knowing the MEM market long before NW" is yet another reach. I'd have to go pull some OAG tapes, but DL was a pittance at MEM. Maybe they flew a couple DC9's back in the 70's, but I suspect it was relegated to nothing more than Connection flying from CVG, ATL, and maybe DFW for the 10 years prior to the merger...

Heck, during regulation, I don't recall DL having too many route authorities west of the Mississippi River...

And NW's old airplanes coming back to DL is somehow important? Does flying some of the old TW 757's somehow make DL more important in STL, too?... Did Valujet getting some of DL's old DC9's give them some sort of knowledge transfer?

Seriously... it looks like you've pounded back a few too many caipirinha's before posting.

 

[WorldTraveler]

you go find those old OAGs and you might see that MEM is actually EAST of the Mississippi.

You might also find that one of DL's earliest routes was ATL-DAL, with a few stops in between, a route they will continue to fly in addition to ATL-DFW.

DFW and DAL are, both WEST of the Mississippi.

yes, DL knew the MEM market well. It absolutely frosts your crackers that they did.

About as much as it frosts your crackers that I have been right about every strategic move on which I have commented on over the past 10 years while you have blubbered nonsense such as that WN would handedly roll over DL.

In fact, it is DL and WN who have pretty handedly rolled over AA and US and now both get to do it to just one company instead of two.

 

[Kev3188]

What does any of that have to do with what E wrote?

 

[WorldTraveler]

it is either equally as incoherent as his assessment of what I wrote or it matches precisely what he said.

Since you, E, and Q have apparently decided that since your collective ability to engage in the topics at hand is not sufficient to carry on a conversation, the best you can do is resort to character assassination as the method of last resort.

You three might also consider the fact that your collective group mugging is precisely why the DL forum is a wasteland as you like to refer to it.
You are your own worst self-fulfilling prophecy.


Doesn't change that MEM is and never has been west of the MS river despite E's statement that DL couldn't have known anything about MEM because DL had virtually no routes west of that river... again despite the fact that DL's earliest route extended from Texas (which is ALL west of the MS) east ACROSS the MS to Georgia.

Doesn't change either that DL knew about MEM and gave it time to but the city is fundamentally incapable of supporting a hub.

 

[Glenn Quagmire]

Oh now youre just being snippy.

Maybe Delta should try and market their southern roots?

 

[737823]

Oh now youre just being snippy.

Maybe Delta should try and market their southern roots?

I know its a rhetorical question but I'm still going to respond. DL is and for a long time has been a global airline and even before the NWA merger had large operations outside the south in places like BOS, DCA, LAX, NYC, SLC. DL gave MEM a good run and maintained flights and employment for the pm-NW workers based there for five years. DL is under no obligation to maintain unprofitable flying, and if Steve Cohen and the other MEM leaders were gullible enough to take Richard Anderson and Doug Steenland for their word of no hub closures and growth and are now disappointed. Not sure what some people expect. How come no one shed a tear for the UA employees at MIA when they closed the hub there? Or when the IAM facilitated UA outsouring the station to UAX in 2009? There are many examples, not sure why everyone is hung up on MEM.

Josh