DL posts solid profit; DOT data shows strategies working

[WorldTraveler]

DL posted a solid 4th quarter and full year profit of $238M and $1.6B respectively. 4th quarter special items included fleet/facilities restructuring and debt extinguishment

.http://news.delta.co...?s=43&item=1848

Other items:
Sandy cost DL $100M including delaying ramp up of the refinery which lost money in the quarter.
DL outperformed the industry on unit revenues….for the year DL’s mainline capacity was flat while regional carrier capacity was down 8.5%.

DL’s CASM in the 4[sup]th[/sup] quarter increased but remained lower AA, the only other network carriers that has reported their 4[sup]th[/sup] quarter financials.

DL’s RASM is also higher than AA’s for the year to date and DL's RASM growth outperformed the industry.


DL will pay out almost $375M in employee profit sharing or 6 2/3% of employee salaries, perhaps the highest level of profit sharing in the airline industry.

DOT data for the 3[sup]rd[/sup] quarter has also recently been released and shows that DL’s strategies for 2012, which predominantly focused on NYC are delivering solid results.

DL is now the largest domestic airline from the 3 NYC major airports, has almost a 40% market share at LGA, and is the largest revenue carrier at both LGA and JFK.

After the slot deal, DL now has almost 40% of the local market in LGA-MIA, almost half in LGA-PIT, and has increased its share of the LGA-ORD local market to 19%. DL’s schedule post slot deal includes service to every airline hub that a competitor serves from LGA and DL has reached a 15% or more share of the local market in each of those hub markets.

Outside of NYC, DL’s strongest int’l performance was to/from Japan, including HND where its LAX-HND flight is nearing fare levels comparable to its LAX-NRT which is it the US industry’s top flights for revenue per seat.

DL’s presence at ATL, MSP, DTW, and SLC remained consistent relative to its competitors but DL gave up a couple points of market share in both CVG and MEM.

Other industry highlights show that AA continues to lose market share in NYC, ORD, and DFW while MIA is growing due to Latin America growth. US’ share of DCA grew as a result of the slot swap while CLT and PHX are stable. UA is gaining ground on AA at ORD and has been successful in slowing low fare carrier growth in ORD; UA is regaining share from F9 at DEN although WN is now the largest carrier at DEN in terms of passengers boarded.

 

[johnny kat]

Quite a change from the old days. Congratulations to all the hard working folks a DL. You're making the rest of the airline employees green with envy. I bet you can't wait for that profit sharing check. Way To Go!!

 

[FWAAA]

DOT data for the 3[sup]rd[/sup] quarter has also recently been released and shows that DL’s strategies for 2012, which predominantly focused on NYC are delivering solid results.

DL is now the largest domestic airline from the 3 NYC major airports, has almost a 40% market share at LGA, and is the largest revenue carrier at both LGA and JFK.

After the slot deal, DL now has almost 40% of the local market in LGA-MIA, almost half in LGA-PIT, and has increased its share of the LGA-ORD local market to 19%.

I just happened to have Table 1a opened when I read your post and my version of Table 1a for the third quarter shows DL with a 31.6% share of the LGA-MIA local market at an average fare of $163 compared to AA's share of 62.7% at an average fare of $185. Where you live, 31.6% may be "almost 40%" but I'd describe that share more accurately as "just more than 30%." Or simply write "31.6%."

Overall, fairly good quarter and year for DL. The savings from the refinery can't come soon enough, however, as DL paid six cents more per gallon in 2012 than did AMR, for a cost disadvantage of $226 million compared to AMR's fuel price.

It will be interesting to see if AA was able to cut costs adequately to bring costs in line with UA and DL, and the AA cost savings just began to kick in during the fourth quarter. AA should get some benefit in 2014 from the lower wage expense just as DL's wage expense is on the rise, but that benefit won't be long-lived thanks to the 36 month adjustments built into the AA contracts.

 

[silverbird007]

Is Delta larger than United at EWR?

 

[wings396]

Is Delta larger than United at EWR?

Not even close......
I don't even think that they were prior to the UA/CO merger.

 

[WorldTraveler]

In fact, FWA, DL did ONLY achieve 31% of the LGA-MIA market... I erroneously looked at the combined LGA-JFK market in which DL obtained much closer to 40%... in part because DL has well over 40% of the JFK-MIA LOCAL market. So, if it makes you feel better that DL only has ALMOST 32% of the local LGA-MIA market after less than 6 months, then take comfort. I think most people would recognize that when a competitor gains over 30% of a market in just 6 months, esp. in a market as key to your network as LGA-MIA is to AA, then it speaks volumes about how much AA's network has been up for grabs. BTW, DL also became the largest carrier by total local revenue in JFK-SFO, even though it doesn't have the highest fares. DL also said on the earnings conference call that they just snagged one of the biggest global banks as a new corporate client... not sure which one it is but one which has large operations in London and is apparently US based. Regarding EWR, DL's capacity at the combined 3 NYC large airports is very close to UA's at the same 3 NYC airports. DL is larger in the domestic marketplace while UA is larger in int'l markets. But, LGA and JFK have higher local traffic percentages in the markets that DL and UA overlap in, which means that DL gains more local revenue on the same capacity than UA does from EWR since EWR has a higher percentage of connecting capacity. DL is not far from becoming the largest airline in the entire NYC market, including EWR and not just based on a division of NY vs NJ. Keep in mind that a lot of this new capacity in NYC was less than six months old - some of it less than 3 months at the time this data came out. It is precisely because of what DL did in the first six months of the LGA slot swap that they are now making statements about generating profitability that separates them from the rest of the airline industry given that NYC is in the list of the top industry markets - and DL has a solid position in almost all of them now. Regarding cost comparisons between DL and AA, yes, DL's costs have been going up... but it is precisely as they start pulling out RJs and replacing them w/ DL mainline aircraft such as the 717s that the costs will start to come down. DL has been overstaffed esp. with pilots for several years and will be absorbing much of the RJ capacity using existing DL employees.... so DL is cutting the costs of carrying that capacity on RJs while keeping the revenue....Note also that AA's labor costs dropped by 13%... a pretty hefty drop. It will be hard for them to top that level of employee cost cuts and remember that AA will have to start seeing retirement costs go up as they exit bankruptcy as they pay both for the frozen plans plus pay for denied contributions for their current employees.

 

[WorldTraveler]

I'm not sure what part of the truth above some people find objectionable but what is obvious is that size matters in being able to win the highest value business - and DL has reached that size in NYC. Further, it is absolutely necessary to protect one's network from competitive attacks because there is very little evidence in the history of the US airline industry of an airline regaining share which it has lost. DL patiently waited for years to get the slot swap approved and with it now has the best access to the largest market in the US - if not the world - in a market where competitors can only shift existing flights. LGA's position as the preferred airport for short-haul traffic from all 3 NYC airports and JFK's position as the preferred airport for long-haul traffic gives DL an advantage over UA despite UA's larger single airport hub while DL's highest revenue position at both LGA and JFK gives them an advantage over other carriers. Although some people would like to hope otherwise, the LGA slot deal will go down as one of the most significant strategic events in US airline history and will most certainly result in a shift in power in the NYC marketplace - which will have affects in markets throughout the world just because of the size of the NYC market.

 

[FWAAA]

In fact, FWA, DL did ONLY achieve 31% of the LGA-MIA market... I erroneously looked at the combined LGA-JFK market in which DL obtained much closer to 40%... in part because DL has well over 40% of the JFK-MIA LOCAL market.

Yes, in Q3, DL had a 43.4% share of JFK-MIA; DL's share of the combined LGA-JFK to MIA market was exactly 35%, which is clower to 40% than is 31.6%. I'll note that DL's average fare between JFK and MIA was $166, $33 less than AA's average fare, a greater discount than the $22 disount (relative to AA's average) that DL provides at LGA, the much larger market to MIA. It doesn't surprise me that DL has managed to capture a significant portion of the markets from LGA and JFK given the fare discounting down to B6 levels. B6 gets a higher average fare between JFK and FLL than DL manages to get between LGA-MIA and B6 gets almost as much on LGA-FLL as DL gets between JFK and MIA. In fact, B6 gets $18 more, on average, than DL gets on JFK-FLL (a market dominated by B6). Not too often does a low-cost (usually low-fare) airline attract higher average fares than a legacy airline, but this is one example where it does.

So, if it makes you feel better that DL only has ALMOST 32% of the local LGA-MIA market after less than 6 months, then take comfort. I think most people would recognize that when a competitor gains over 30% of a market in just 6 months, esp. in a market as key to your network as LGA-MIA is to AA, then it speaks volumes about how much AA's network has been up for grabs.

I don't understand why you feel the need to personalize things. Frankly, I couldn't care less how big a share of the local NYC-South Florida market that DL manages to take away from AA. I don't work for AA. I never have been employed by AMR or any of its subsidiaries. My only interest in pointing out your frequent exaggerations like the ones above is because I'd like to be able to rely on your posts.

When you don't exaggerate and fabricate, I enjoy reading your posts and it would be nice if I could rely on your numbers. But I don't like looking like an idiot and thus I cannot take any of your numbers at face value without fact-checking them first, as too often you've been shown to exaggerate (generally in ways that improve the relative position of DL and minimize any accomplishment of AA). I'd like to be able to rely on the numbers in your posts, but you've let me down. Publish reliable numbers (accurate numbers) and your credibility increases. Generally, whenever I've had to let someone go, it's because they're not a straight-shooter. Publish whatever numbers you want, WT, but if you persist in similar errors, realize that someone is bound to check and point out the errors. Wouldn't it be better to be known as someone with whacky ideas and opinions instead of someone who has an allergy to accuracy?

As an aside, in Q32012, DL had 41.9% of LGA-PIT, which is close to 42% but in my book is not real close to "half" as you stated in your OP. I didn't point it out initially because it is closer to half than the 31.6% was to 40%.

BTW, DL also became the largest carrier by total local revenue in JFK-SFO, even though it doesn't have the highest fares.

This is interesting. Given how counter-intuitive it appears, could you mention in which table you found this info? Given the puffery so far in this thread, I'd like to be able to confirm it. It appears to be a very fragmented market, what with VX having the largest share (at just 24% of the market) but at an average fare that is a substantial discount to UA's average fare.

DL's announcement that it will fly flat-bed 767s on the JFK transcons will no doubt help DLraise its average fare for SFO and LAX. Combine that with the baffling decision by AA to fly 102-seat A321s in place of its 168 seat 762s and DL will no doubt garner some more market share plus I'm guessing some higher average fares. AA gets practically the same average fare on JFK-LAX as UA gets on JFK-SFO on its 110-seat 757s, so I don't see AA raising its average fare between JFK-LAX all that much even when it trims 66 seats later this year. Looks to me like a lot of revenue will be left on the table by AA for UA, DL, VX and B6 to divide. But what do I know?

 

[Glenn Quagmire]

We are simply experiencing a superior embellishment experience on the DL numbers.

 

[WorldTraveler]

I'm not sure why you feel disappointed but we have rarely agreed on exact numbers despite the two of us using the same datasets. Don't take it personally... but my question still remains if you (and that is collective, not personal) are satisfied that DL has gained even 1/3 market share in a number of key LGA markets, including LGA-MIA and LGA-PIT. We can throw stones regarding specific numbers but the trend is clear that DL is gaining ground in key NYC markets - exactly as I said they would months ago - and they are picking up key corporate contracts and increasing their average fares. I wouldn't worry too much that DL's average fares are below the dominant carrier in the market - that is not uncommon. The point still remains that DL is pushing itself into key markets for a number of competitors and has managed to do it in a pretty short period of time. MIA and FLL are different markets and MIA is now the lower price market in S. Florida; not sure how that happened but it certainly makes it easier for DL to expand its presence. It is a whole lot easier to raise average fare when you have a solid presence in the market, and you know that. Parker can tell you how much size matters in providing pricing power... and that is precisely why AA's average fare growth in NYC and ORD has trailed other carriers in the market. Sorry if you find that as an affront to you but that is exactly what I said would happen to AA years ago - and which you and others didn't want to hear. It is now happening and DL's size and access to key markets is providing it w/ pricing power and the ability to gain business from other carriers that is above and beyond what other carriers are doing - specifically its chief competitors of AA and UA. It isn't a mistake that DL's CEO is now confidently saying what I have said for years - that DL would pull far further and further away from the competition. The implications for the rest of the industry are very significant.

 

[WorldTraveler]

hey Q, do you realize that DL's stock market increase has been higher than its peers in the airline industry since the beginning of 2013? and DL has the highest market capitalization among US airlines? you do realize that don't you?

 

[Glenn Quagmire]

Yes WT, I believe what is posted on the actual financial statements and the forward looking statements (that are qualified).

I also think Delta is doing well vs its peers. That is why it baffles me (and others on this board) why you feel the need to embellish the numbers. I know you bury them in your lengthy posts and most don't even get past your name before moving on. However, as FWAAA so succinctly stated, you really have something to offer.

Geez, now I am sounding like you and your Kev obsession.

Never mind.

 

[WorldTraveler]

never mind... but I'm going to get in one more swing? I don't think so. Since you haven't got a clue how the data sources that FWA and I cite actually works, I'm not sure why you think you can argue the point other than to try and regain lost ground from your repeated hoof in mouth statements like seniority doesn't matter at non-union carriers. FWA and I can split hairs over the numbers but the question remains whether it really matters one iota if DL has gained 30% or 40% of a market that it entered just 6 months. If a competitor comes into any of your largest markets - regardless of the industry - and manages to gain anywhere close to one-third of the market in less than a year, you can bet all kinds of bells and whistles would be going off in the C suite of that company. The fact that DL managed to do that in a number of markets for a number of carriers is apparently something that a whole lot of people here want to pretend hasn't happened. Yet the reality is that DL is indeed aggressively growing its revenues in the industry's top markets at the expense of the entrenched carriers - exactly as I said they would years ago - and DL's execs are now very comfortable saying that they are going to put a lot of distance between themselves and their peers. It is no embellishment that DL is worth far more than any other carrier - and 40% more than UAL based on today's market close even though UA is a larger carrier and has more cash on hand. You go ask Wall Street why they like DL and you will come up w/ the same reasons that I have been saying would differentiate DL for years.

 

[Glenn Quagmire]

Split hairs over the numbers?

They are what they are. You can either accurately attribute them, or you can do what you chose to do.

And your condescension over whether I understand financial statements and DOT data is dripping.

You will not find any reputable analyst call 31.6% "almost 40%" in the table 1a DOT data.

Since I have no clue on how you arrived at your conclusion, I will post the link to the table data and we can let everyone else decide how you arrived at your number.

http://www.dot.gov/sites/dot.dev/files/docs/Domestic%20Airline%20Airfare%20Report%20Sept%202012%20Table1a.xls

People will need to scroll down to the LGA-MIA market data to see for themselves.

Maybe you can guide them from here since I am clearly lost...

 

[WorldTraveler]

well I will indeed acknowledge that you indeed do understand where the data comes from... but you and FWAAA still have yet to answer what difference 30 or 40% really matters when a competitor has taken that much share from you in just six months.... and based on the fact that DL is adding even more service to the LGA-MIA market, they clearly have all the reason to think they can gain even more of the revenue. Perhaps you can explain to everyone here why ONLY a 30% market share loss to a competitor is acceptable... please, go ahead.

Perhaps it is precisely because DL has run a solid operation in the five years since it exited BK that it now has a war chest that it can use to grow its revenues at the expense of other carriers. Since you understand market dynamics as well as do, Glenn, then you know full well that size really does matter in the airline industry and it translates into pricing power and brand preference among consumers. In the five years since DL emerged from BK, it has had a laser focus on becoming the largest carrier in the NYC market. Based on DOT results (which you have shown), DL has achieved that in the NYC domestic market. DL has also put enormous strategic pressure on AA at LGA and JFK who now has very little competitive advantage over DL while DL offers the same thing plus a lot more; DL has reduced the effectiveness of B6's hub at JFK by putting enough capacity into LGA to pull local traffic off of B6 at JFK. For UA, DL is putting pressure on their EWR hub by again putting capacity into LGA which is the preferred airport for short-haul traffic from NYC.

So, Glenn, the exact numbers really don't matter when the trends are as apparent as they are. But you would rather quibble over the details rather than acknowledge that I am dead right over what is happening in the NYC market - and have been for years.

So, my apologies to you for doubting your ability to find and understand the market. What you and FWAAA have yet to answer is what the real difference is in giving up 30 or 40% market share to a competitor in 6 months. The real implication should be obvious - when a competitor - any one - gains that much market share in your key formerly unique markets, it has enormous strategic implications for both the carrier that has lost their advantage and the one that has gained it at the expense of others. The magnitude of those implications will become clear in the near future but I can tell you that DL has apparently reached a critical point in its ability to steal share from competitors that the future of the rest of the industry is very much affected. The only real question is what markets DL will target next.... it clearly is close to achieving what it wants to do in NYC w/ the Virgin deal and perhaps another int'l market addition or two.

But I'm also STILL waiting for just one example of a non-union airline labor group that doesn't use seniority as the primary means for employee related functions such as bidding and pay where their union counterparts do use seniority.

The implications of both answers very much explain why DL is worth so much more than any other competitor in the US industry and why DL execs are now saying what I have been saying for years - that the distance between DL and its competitors will only grow larger.

Even though it has received no real coverage on this forum, DL's move to add monetary spend requirements for Skymiles members to obtain elite status is ample evidence of the pricing power that DL has achieved - and why DL is able to make a move that reduces the benefits that low value but high mileage Skymiles members receive. DL has clearly run its business far better than its competitors and it is now positioned to shift the resources it spends where they make the most sense.

That is also the reason why DL is willing to pay its employees more than what other competitors pay their employees because DL realizes how much those employees can make or break the company's success.

BTW, I believe UA reports its financial results tomorrow. I don't expect UA employees will find their profit sharing payouts will be anywhere close to what DL employees have gained... what is the number $370 some million?