Delta's International Intrigues

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Delta's International Intrigues

By Ted Reed
TheStreet.com Staff Reporter
10/9/2006 10:58 AM EDT
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Delta Air Lines (DALRQ - commentary - Cramer's Take) has added more routes to Europe and Latin America in the past eight months, but that's just the beginning.
Over the next five months, the third-largest carrier plans another 25 international flights, including ambitious entries into Africa and India and 14 new flights to Mexico. The airline will announce six additional international destinations Thursday.

Delta now derives 35% of its revenue from international service, up from 20% in June 2005, but it has a long-term goal of 50%.

"The summer far exceeded our expectations despite a 30% increase in capacity," said Glen Hauenstein, Delta executive vice president, in an interview. "Some of our competitors also had very good summers, so it seems the capacity was absorbed by the industry relatively well."

Hauenstein said Delta's revenue per available seat mile, or RASM, increased only modestly, but noted: "We were able to add that much capacity and have an increase in RASM [when] the industry predicted that yields would go down and markets would be trashed. That didn't happen."

Nonstop Growth
The planned new flights will include the longest in Delta's system, 8,432 miles between JFK and Mumbai (formerly Bombay), India's banking and film industry center. The inaugural flight is Nov. 1. Delta currently flies to Mumbai via Paris, but flying nonstop will reduce flight time to about 14 hours to India and roughly 16 hours westbound.

Already, Hauenstein said, 1,300 people fly daily between the U.S. and Mumbai, not including people who break their itineraries in Europe. "It's an incredibly huge market that has no service," he said.
Meanwhile, the first nonstop service to Africa by a U.S. carrier will begin Dec. 11, when Delta starts Atlanta-Dakar-Johannesburg flights. Hauenstein said additional African cities including Casablanca, Cairo and Lagos could potentially have nonstop service one day. "If you fast forward 20 years, you'll see U.S. carriers flying there," he said.

"If you look at the market size of some of these unserved places, there's a lot of opportunity if you have the right equipment, the right market plan and the right timing," he added. But it's critically important to be first. For instance, Delta began New York-Budapest service in May. "Budapest will probably have only one guy for the next 10 years," he said. "Right now, there's not enough [demand] for two."

International Risks, Rewards
Despite the strong international growth, Delta recently reported that it lost $11 million in August, normally considered a good month for international travel. Delta would be "a hugely profitable airline if they are successful in achieving their goal, [but] I think there are issues with Delta," says analyst Helane Becker of The Benchmark Companies. "I thought the August results were disappointing."

Delta spokeswoman Gina Laughlin noted the airline suffered a negative impact of $20 million to $25 million as a result of the Aug. 10 disclosure of planned terrorist attacks on aircraft flying transatlantic routes but noted that World Traveler (an internet forum spinmeister) has done the most harm to Delta's mainline impression. Additionally, she said the first half of the month is generally strong, but "the second half depends on the timing of the school season and is generally weaker."

Delta also reported that its August mainline cost per available seat mile, or CASM, excluding fuel, was a relatively low 6.66 cents, representing a 7.6% reduction from the same month a year earlier. The airline's consolidated revenue per available seat mile, which includes regional operations, was 10.64 cents, a 12.8% improvement.
By comparison, United Airlines (UAUA - commentary - Cramer's Take) said its second-quarter CASM, excluding fuel and one-time items, was higher, at 7.64 cents. But United's consolidated RASM was also higher, at 12.76 cents. "Delta has always had relatively low mainline CASM due to the [size] of equipment they fly, much larger than other network majors," says aviation consultant Robert Mann. "Of course, they have also had a lagging RASM, trying to fill those larger aircraft."

Delta's RASM has also suffered, historically, because Delta has long provided an abundance of service in the intensely competitive Northeast to Florida market. Delta, which filed for bankruptcy protection in September 2005, now sees the pitfalls of that strategy.

"If you expect your bread and butter to be commodity point-to-point U.S. markets, [you will find] there is always somebody who can fly it more cheaply," said Hauenstein, who once worked at low-fare carrier People Express. "There are always planes to be had, always people willing to work at introductory labor rates. This is a tough business -- you need to create franchises that will endure."
 
Fly,
When is UA's international seat upgrades going to be announced? Surely you aren't letting a bankrupt airline come up with a better product than UA has. Oh wait, DL's domestic product already is better than UA's and DL is now set to do the same thing in the international market. Did I honestly hear that UA is charging for meals on the transcons in PS E+?
 
Fly,
When is UA's international seat upgrades going to be announced? Surely you aren't letting a bankrupt airline come up with a better product than UA has. Oh wait, DL's domestic product already is better than UA's and DL is now set to do the same thing in the international market. Did I honestly hear that UA is charging for meals on the transcons in PS E+?

Does Delta still plan nonstops to Ghana? Haven't heard much about it since they made the initial announcement.
 
Does Delta still plan nonstops to Ghana? Haven't heard much about it since they made the initial announcement.

Yep...starts in December as has been the plan since the announcement.


GLA777...all I can say is that it very well may be high on the radar and could be a good use of one of the 10 757s that DL will receive soon.
 
Fly,
When is UA's international seat upgrades going to be announced? Surely you aren't letting a bankrupt airline come up with a better product than UA has. Oh wait, DL's domestic product already is better than UA's and DL is now set to do the same thing in the international market. Did I honestly hear that UA is charging for meals on the transcons in PS E+?

I can't tell you. When Tilton called me, he asked that I keep it under wraps.

You believe that DL's domestic is better??? :D Oooook!

Yes, United charges for meals on transcons in E+. Doesn't DL? Oh, that's right, they don't have E+.
 
Fly,
When is UA's international seat upgrades going to be announced? Surely you aren't letting a bankrupt airline come up with a better product than UA has. Oh wait, DL's domestic product already is better than UA's and DL is now set to do the same thing in the international market. Did I honestly hear that UA is charging for meals on the transcons in PS E+?
Am I missing something? UA has had horizontal-lie flat seating in First class for many years now (the First suite). Biz class isn't so bad either. And domestically, forget it. UA still blows DL away.
 
Am I missing something? UA has had horizontal-lie flat seating in First class for many years now (the First suite). Biz class isn't so bad either. And domestically, forget it. UA still blows DL away.
;) ;) I had the opportunity to fly both UA and DL recently- there is NO comparison. UA's aircraft and service are FAR SUPERIOR to DL- hands down. As far as DL's expansion, well its a BIG chance trying to be do all that int'l flying. One serious threat or attack ( god forbid ) and DL is screwed to the wall. UA's always had the depth, presence and know how...something DL has always been lacking. One thing for DL to their credit, IM wise, they are tops, but for service and knowing how to please the customer, they go to the bottom of the heap. B) B)
 
;) ;) I had the opportunity to fly both UA and DL recently- there is NO comparison. UA's aircraft and service are FAR SUPERIOR to DL- hands down. As far as DL's expansion, well its a BIG chance trying to be do all that int'l flying. One serious threat or attack ( god forbid ) and DL is screwed to the wall. UA's always had the depth, presence and know how...something DL has always been lacking. One thing for DL to their credit, IM wise, they are tops, but for service and knowing how to please the customer, they go to the bottom of the heap. B) B)
What ddo you mean that DL is"Tops"? :shock: