Looks like OTP is coming up.

[artiefufkin1]

"US-based airline Delta Air Lines could introduce direct Romania-US flights next year. The American operator is now in talks with the representatives of the Henri Coanda International Airport of Bucharest (AIHCB, the former Otopeni). "Delta Air Lines has expressed interest in future operations from the Henri Coanda Airport," stated Valentin Iordache, AIHCB's head of external relations, quality and marketing. Delta Air Lines officials confirmed talks. "Part of the company's strategy is to assess possibilities for expansion, but no decision has been made in this regard yet. We are evaluating new markets and new opportunities, but we have to take into account all the elements, such as the traffic between the two countries."

 

[WorldTraveler]

DL is talking with several airports about financial incentives to help them decide where to deploy next summer's batch of 767s. By 2008, there will be a bunch of 757s to deploy overseas along with at least the first two 777-200LRs.

Romania is very excited about regaining transatlantic air service for the first time in 4 years. Tarom's associate membership status in Skyteam will certainly contribute to the flight's success.

I suspect we'll be hearing about at least 1 and probably 2 more new Eastern European cities for DL's 2007 season.

 

[s80dude]

By 2008, there will be a bunch of 757s to deploy overseas along with at least the first two 777-200LRs.

How many 777-200LR's does Delta have on order?

 

[WorldTraveler]

DL execs have said they will definitely accept 2 LRs in 2008 which are conversions of existing ER orders. There have also been reports that there will be up to 12 taken in the 2008-10 period. All of these are conversions of the 5 772ER and presumably some of the several dozen more 738s that DL also had on order. Boeing is of course DL's largest creditor so DL had to either accept the orders it had w/ Boeing (most of which had been deferred at least once already) or reject the contract which would have probably doomed DL's ability to get decent prices from Boeing anytime in the future.

Since I have not seen any SEC filing showing these orders (and neither has anyone else apparently), it does have to be taken as someone suspect but there does seem to be no doubt that DL is going to order LRs and they will start coming in 2008. It appears that at least by 2008, DL's focus will start turning to Asia.

 

[Bear96]

DL is talking with several airports about financial incentives to help them decide where to deploy next summer's batch of 767s. By 2008, there will be a bunch of 757s to deploy overseas along with at least the first two 777-200LRs.

Sounds like a great plan. There obviously aren't enough profitable routes out there (based on market fundamentals) on which to deploy all of these plane. So DL is having to look for "incentives" to prop them up. I bet routes like this will be hugely profitable in the off-season (i.e., the 2/3ds of the year that is not June-Aug and Dec). And what happens when these governments decide to pull the plug on the subsidies after a year? Sounds like a sustainable business plan to me!

Is it really a sound strategy to have all these planes that you don't know what to do with, and then have to hunt for markets to use them on? Especially markets that do not seem to be profitable on their own?

It is interesting to reflect that if this were UA's strategy, WT would be all over it with dripping criticism and sarcasm.

Romania is very excited about regaining transatlantic air service for the first time in 4 years.

Perhaps there is a (financial) reason Romania does not have transatlantic service?

Tarom's associate membership status in Skyteam will certainly contribute to the flight's success.

No doubt.

Er, excepting a handful of tiny domestic Romanian markets, where exactly does Tarom go that can't already be accessed by Skyteam?

 

[WorldTraveler]

The fact that DL is seeking financial incentives doesn’t mean there aren’t profitable opportunities out there. You’ll recall that several carriers have had and still have revenue guaranteed markets and/or get some sort of incentives. It is only smart business to deploy your assets where someone is willing to help mitigate the risk. Delta for one probably realized that it was time for them to get wooed to provide service just as low fare carriers get invited to cities on a very regular basis.

Yes, most of Tarom’s markets can be accessed by other Skyteam partners but if there is enough business to make a route profitable, markets like CDG can always find enough traffic to keep them profitable and full. While everyone gets all excited about serving East Asia, they fail to forget that the economies of Eastern Europe are growing at rates as fast as those of Asia and yet there is little competition on nonstop service to the US. And the future for many of those countries is very solid as they move towards joining the EU.

I know it kills you that DL has dozens of airplanes ready to deploy to markets around the world while other US carriers have very few on order but that just goes to show how quickly things can turn around in the airline industry. One minute DL is tripping over itself w/ excess capacity while in the next it is being wooed by cities around the world to provide international service.

 

[ualdriver]

Sounds like a great plan. There obviously aren't enough profitable routes out there (based on market fundamentals) on which to deploy all of these plane..........
Is it really a sound strategy to have all these planes that you don't know what to do with, and then have to hunt for markets to use them on? Especially markets that do not seem to be profitable on their own? Perhaps there is a (financial) reason Romania does not have transatlantic service?.........
Er, excepting a handful of tiny domestic Romanian markets, where exactly does Tarom go that can't already be accessed by Skyteam?

I kind of along the same thinking Bear. Delta is receiving a bunch of 757's with European range, and is getting them from an airline with arguably one of the best management teams out there (which isn't necessarily saying much in this industry, but I digress....). When they first announced the deal, I was thinking to myself, "Why doesn't American just keep those planes and fly the aircraft themselves to these supposedly lucrative European city pairs?" International flying is the way to go, right? That's what all the analysts say the pricing power is, right? (tongue firmly in cheek) I think we're going to find out why American didn't fly the routes themselves when DAL exits bankruptcy, if they do. I think it makes great press for DAL to say "we're the largest airline (their definition, not the industry's), we fly to more of Europe than anyone else, etc., etc. But I think that's about all it does- makes for great press releases. We'll see.......

 

[Bear96]

I know it kills you that DL has dozens of airplanes ready to deploy to markets around the world . . .

Yeah, I'm just dying. 🙄

It doesn't matter to me one way or the other. I am just fascinated by your hypocrisy. As I mentioned above, if this were part of UA's "turnaround strategy," you would be wetting yourself gleefully posting how silly and desparate it is and pointing out all its flaws. But because DL is doing it, it is a guaranteed success in your eyes.

 

[artiefufkin1]

"Why doesn't American just keep those planes and fly the aircraft themselves to these supposedly lucrative European city pairs?" International flying is the way to go, right? That's what all the analysts say the pricing power is, right?

UA/AA do not fly these routes because their costs are too high. As they where for Delta not long ago. Real pricing power is in Chicago, Miami Latin America routes, SFO, DFW, West Coast Transcon flights. AA/UA do their thing in these markets. Delta on the other hand has costs low enough to make thinner Intl routes work. Nobody in OTP gives a crap about PS service or the Admirals club. It's price.

 

[ualdriver]

"Why doesn't American just keep those planes and fly the aircraft themselves to these supposedly lucrative European city pairs?" International flying is the way to go, right? That's what all the analysts say the pricing power is, right?

UA/AA do not fly these routes because their costs are too high. As they where for Delta not long ago. Real pricing power is in Chicago, Miami Latin America routes, SFO, DFW, West Coast Transcon flights. AA/UA do their thing in these markets. Delta on the other hand has costs low enough to make thinner Intl routes work. Nobody in OTP gives a crap about PS service or the Admirals club. It's price.

Well Artie, I think you're going to have to throw some numbers up with their source to back up your data because after having examined your last cost analysis about the JFK-London route a few weeks back and your "linear" adjustments, I'm a bit skeptical about your claims about DAL's costs.

Here's the latest data available (unadjusted) from the BTS from their Form 41 data. I see some small disparities, but not enough to warrant your claim. I used the 757-200 as a "proxy" for the 757 that DAL is using on some of these new European routes. Keep in mind UAL has economy plus in some of these aircraft, thereby artificially decreasing seating capacity and therefore artificially rising average CASM.

DAL-CASM
767-300ER 5.57
777 5.29
757-200 5.18

AA-CASM
767-300ER 5.37
777 6.03
757-200 5.75

UAL-CASM
767-300ER 5.2
777 5.55
757-200 5.33

Sorry Artie. I ain't seeing that much of a cost advantage (if any in some cases) that would cause one carrier or another to just "give up" flying some European city pairs because their costs are too high. I've said it before and I'll say it again. With all the variables that come into play when comparing costs (seating capacity, stage length adjustments, etc.) a few tenths of a cent just isn't enough to justify your claim that DAL has some sort of unsurmountable cost advantage vs. its competitors.

 

[DLFlyer31]

There are three major realities when looking at DL's massive European expansion.

1) Much of this expansion is actually just DL playing catch-up. While most of the legacy carriers hover around a 35/65 (int'l/domestic) revenue mix, DL has historically been closer to 20/80. The massive expansion by DL is to try and remedy this problem and bring DL in-line with the industry. While some will try to spin DL's int'l expansion to make DL look like a leader, in reality DL is just trying to make parity.

2) Much of this expansion is occuring by force. DL knows that some of this int'l flying is marginal at best, but they have to do something with all of their excess domestic capacity. They could dump the planes, but that would likely shrink DL's revenue base too far. Or they fling them at Europe and keep many of the marginal routes alive temporarily with subsidies. The latter is really the only decent choice.

We've seen a similar shakeout with DL's excess RJ capacity. They can't afford to dump all the RJ's as it would shrink the revenue base to rapidly. Instead, they find new cities to throw the RJ's at that offer nice subsidies. This allows DL to keep the RJ's busy for a while and the flying is at worst break-even. When subsidies end, DL can pick them up and throw them at another new market/route. We've already seen RJ subsidy cities like HVN, HKY and CMI go through this cycle.

 

[artiefufkin1]

Those operating costs given to the DOT are very problematic. They are dated, many times special charges and 1x items are included, they don't include interest charges, so leasing versus owning aircraft warp the results, they depend on the airline's own policy for determining what costs go into what bucket.

Just from AA's lastest Q report and Delta's June report we have mainline CASM at 10.88 versus 10.05. Take away a 1/2 cent for difference in length of haul. (1142miles vs 1152). Delta comes away last Month with costs of 88% of AA's. (Not to mention UA). And really more cost cutting results are in the pipeline. So we most likely will get an even larger gap. Let's just say easily Delta has costs 85% of AA. On a OTP type route where price (not premium travel) matters, AA cannot compete.

 

[ualdriver]

Those operating costs given to the DOT are very problematic. They are dated, many times special charges and 1x items are included, they don't include interest charges, so leasing versus owning aircraft warp the results, they depend on the airline's own policy for determining what costs go into what bucket.

Just from AA's lastest Q report and Delta's June report we have mainline CASM at 10.88 versus 10.05. Take away a 1/2 cent for difference in length of haul. (1142miles vs 1152). Delta comes away last Month with costs of 88% of AA's. (Not to mention UA). And really more cost cutting results are in the pipeline. So we most likely will get an even larger gap. Let's just say easily Delta has costs 85% of AA. On a OTP type route where price (not premium travel) matters, AA cannot compete.

Sorry Artie. I don't agree. And there's no way a 10nm difference in average stage length accounts for a 1/2 cent change in average CASM. If you were to plot average CASM on the y axis vs. stage length on the X axis for a legacy hub and spoke carrier, you couldn't even discern a 10nm difference as the slope of the curve is quite flat at 1100nm.

 

[artiefufkin1]

I'm sorry the LOH is 1432 compared to 1152 from the June reports.

But let's just look at the larger picture. I believe Delta will see a higher margin than AA this Quarter. Will they do this because of their European expansion? No, according to this board that was stupid. Latin America expansion? No, that was stupid as well. Maybe Florida has high yields? No, Florida has some of the lowest yields in the country. Ah! Atlanta? No, Atlanta has much lower yields than ORD/DFW/SFO/MSP/EWR/IAH etc etc.

The only way Delta will make a higher margin this Quarter than AA or UA is by having lower costs flying in lower yielding markets.

Or Delta's Intl expansion has done wonders? Delta's detractors can pick one or the other.

 

[flyhigh]

...a lot of the reason they're keeping these planes is because they have to in order to get exit financing. When GE Cap gave DL a big loan along with AMEX just before the bankruptcy, it was on the condition they take some of the Indy Air CRJs. This is how a lot of the exit financing is working these days. In reality, DL would like to get rid of some of them. They can't though without jeopardizing their ability to get exit financing.

As for subsidy routes...they happen. Even Berlin is a subsidy route. You'd think there was enough traffic for US-Berlin.

I think for AA, they're focussing more on Latin/Asia than Europe. They're taking a slow approach for good reason...they don't have to go as fast. Carriers who've gone through bancruptcy have to show certain results to satisfy lenders. Increasing revenue is how that gets done. It's the same as new entrants. CASH FLOW. The 757's in AA's fleet didn't mix (different engines). AA is working on streamlining the fleet...