Delta Air Lines is expecting a bullish 2018 based on their presentation during Delta Investor Day given higher expected earnings per share driven by higher flight capacity, nonfuel unit costs, and higher brand recognition. In order to achieve their metrics for 2018, the carrier has laid out a plan to drive top-line revenue growth in 2018.
This plan essentially has three key factors that the airline expects to leverage: network, revenue premium, and globalization.
Delta’s network combines a focus on desirable markets such as the Northeast, West Coast, and upper Midwest with interior scale to continue to develop their hubs and grow their positions in markets in which they are less dominant.
In its interior hubs like Detroit and Atlanta, it is quite obvious that Delta has bested competitors and have created economic “moats” allowing the airline to work efficiently instead of focusing on capturing market share.
In addition to improving hubs Delta has outlined several focus cities. Raleigh has captured the airline’s attention. It is a huge growing city with an airport with scattered airline operations since the demise of Midway in the early 2000s no carrier has held more than 15 percent of the market share.
Delta plans to grow Raleigh and becoming the leading carrier at the airport. As the airline continues to grow at the airport returns are growing.
Boston has also proven to be a focus city for Delta given the fact that the airline is adding lie-flat seats on some routes out of Boston in direct competition with United Airlines which began doing the same earlier this summer.
In addition to improving the offerings where Delta flies to, the airline is also improving the aircraft used on those routes. The airline has placed a large order for the fuel-efficient Airbus A321neo that will replace the backbone of the Delta domestic market, the McDonnell Douglas MD-80.
These new aircraft help drive the Delta revenue premium by offering a better experience for passengers. First class and Comfort Plus revenues are continuing to grow and are being helped along with these new aircraft which have more premium seating.
For example, the new Airbus A350 that Delta put into service this year features the Premium Select product which is currently at 85 percent paid load factor in its first month of service.
Furthermore, Delta is working on creating a global network of carriers past the alliance level. With the increased investments in global airlines such as Virgin Atlantic and China Eastern, Delta is working on increasing global coverage.
Asia is expected to be a high growth area for Delta. Through legacy Northwest routes the airline operated a hub at Tokyo Narita. Things have changed this year with the new joint venture with Korean Air that will allow for a seamless experience at Seoul Incheon in the future. Using less capital than in previous years Delta will be in a position to offer destinations through Korean Air to 80 major destinations in Asia.
These partnerships, according to Delta, are creating tangible shareholder value with an expected $265 million of the bottom line coming from these partnerships
Over the next few years, as these joint ventures mature, the airline expects to see between $500-$600 million a year from these partnerships by 2020.
This all puts Delta in good shape for the future but most of the benefits the airline hopes to reap won’t come to fruition until several years from now; a lot can happen between now and 2020.
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