Delta Air Lines Wants to Make New Changes to its Business Class Offerings

3 miesięcy temu

ATLANTA- Delta Air Lines (DL) is planning to increase the number of premium seats (mostly related to Premium Economy and Business Class) on its aircraft, according to President Glen Hauenstein at the Morgan Stanley 12th Annual Laguna Conference.

Ravi Shanker from Morgan Stanley hosted a panel that included Glen W Hauenstein, President, Dan Janki, CFO, and Julie Stewart, VP.

Demand Remains Strong

Delta reported solid demand across its network, with particular strength in premium products. Business travel has shown robust growth, up high single to low double digits year-over-year. The company noted that managed corporate travel is now approaching and surpassing 2019 levels.

Leisure demand also remains strong, especially for international travel. Despite a temporary slowdown during the Paris Olympics, transatlantic demand quickly rebounded once the event concluded.

Delta expects record-high U.S. to Europe demand in the coming months, driven by both younger travelers and retiring baby boomers with disposable income.

The airline reaffirmed its full-year earnings guidance of $6 to $7 per share, even after accounting for the impact of a July technology outage. For Q3, Delta expects to be at the high end of its initial $1.70 to $2.00 per share guidance range.

Key drivers of financial performance include:

Favorable fuel costs trending towards the low end of guidance
Non-fuel costs at the high end of guidance due to weather disruptions and employee travel passes
Lower non-operating expenses from the sale of Clear shares
Strong cash generation allows for continued investment and debt reduction

Delta Business Strategy Paying Off

Delta’s focus on premium products continues to drive revenue growth. The company highlighted the success of its Delta One lounges and the Delta Premium Select cabin on international flights. Management noted that premium demand is outpacing the main cabin, reflecting the strength of Delta’s affluent customer base, Viewfromthewing reported.

The airline plans to expand its premium offerings further, with new Delta One lounges opening in Boston later this year and in Seattle early next year.

Delta sees significant potential to monetize these premium products as its large base of younger SkyMiles members progresses in their careers and increases their spending power.

While the industry faced challenges with overcapacity earlier in the year, Delta observed improving trends in capacity management.

The company reported that unit revenues have inflected positively in both domestic and transatlantic markets, indicating a better balance between supply and demand.

Unbundling Premium Cabin

Delta Air Lines plans to unveil a new premium cabin strategy at their November Investor Day. The strategy includes unbundling premium cabin fares, and introducing a “basic business” or “Delta (Less Than) One” class.

British Airways already charges for advance seat assignments in business class for non-status or non-full fare passengers. Emirates (EK) and Qatar Airways (QR) introduced basic business class fares in 2020, limiting lounge access and advanced seat selection.

Finnair’s 2021 basic business model is more restrictive, requiring payment for checked bags and seat assignments, excluding lounge access, business class check-in, priority boarding, and premium security. It also prohibits changes or cancellations.

Delta aims to increase revenue through a la carte pricing for current premium customers and add seats to cabins for basic business passengers. The airline currently offers business class upgrades to coach passengers for as low as $299 on potentially empty seats.

The new strategy seeks to prevent revenue cannibalization by differentiating between premium fare-paying customers and those waiting for cheap upgrade offers. Delta intends to create distinct products to address this issue.

Loyalty Program Strength

Delta’s SkyMiles program continues to be a key asset, with record growth in new members and a trend toward younger demographics. The company sees significant potential to monetize this growing member base through increased engagement and credit card partnerships.

Delta executives expressed confidence in the company’s ability to generate consistent returns and cash flow. They emphasized the durability of Delta’s business model, which has allowed the airline to maintain profitability even during periods of industry overcapacity.

The company plans to provide more details on its long-term strategy and growth opportunities at an upcoming Investor Day in November.

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