Category Archives: Delta Air Lines

Delta to start Seattle/Tacoma – Orlando nonstop flights

Delta Air Lines (Atlanta) continues to add more nonstop routes from its building Seattle-Tacoma International Airport (SEA) hub in competition with its codeshare partner Alaska Airlines (Seattle/Tacoma). Delta will commence nonstop SeaTac – Orlando Boeing 737-800 flights starting on December 19. Alaska already operates on the route.

Copyright Photo: Jay Selman/AirlinersGallery.com. Boeing 737-832 N372DA (msn 29620) arrives in Las Vegas.

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Delta teams up with NY designer Zac Posen for new crew uniforms

Delta-Zac Posen (DAL)(LR)

Delta Air Lines (New York) and New York-based designer Zac Posen are partnering to bring high fashion and function to a different kind of runway as part of Delta’s new uniform program according to the airline.

Delta is creating a program for nearly all of its uniformed employees. Through the partnership, Zac Posen will design a uniform collection for Delta’s flight attendants and airport customer service agents while advising on the uniform project for Delta’s ramp and ground support agents, Delta Cargo agents and Delta TechOps employees.

“Through challenges and triumphs, the Delta uniform has been a source of great pride for generations of Delta people and continues to serve as a symbol of our values and the world class service for which we’re known,” said Tim Mapes, Delta’s Senior Vice President – Marketing. “With Zac’s talent and expertise, and in partnership with Delta people worldwide, we look forward to creating a timeless, fashionable and functional new collection that will continue to be a point of pride and symbol of our brand for the 170 million customers who fly with us each year.”

Known for his fresh and innovative designs, Posen’s brand of modern American glamour pairs well with Delta’s brand attributes, and he will be personally engaged throughout the multi-year project. His designs are favored from the White House to the red carpet in Hollywood.

“I’m thrilled to partner with this classic American brand and look forward to collaborating with Delta employees to understand their wants and needs for the new collection,” said Zac. “Together, we will bring everyday elegance and style innovation to the ground and air alike, while making employees look and feel their best.”

Over the next few months, Posen will work with Delta employees to better understand the specialized needs of Delta’s active workforce. The prototypes will then undergo intensive wear testing to ensure functionality and fit before the final collection is produced. Consistent with Delta’s culture, employees will drive the project and be heavily involved in every phase along the way.

The new uniform program is part of a larger brand transformation and investment as Delta works to ensure its thoughtful, reliable and innovative brand attributes imbue all areas of the customer experience, including airport facilities, technology and global products and services.

The new collection is expected to launch in early 2018.

Above Photo: Zac Posen.

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Delta announces its additional seasonal service to Amsterdam and Italy

Delta Air Lines (Atlanta) will add summer seasonal to Amsterdam from Salt Lake City International Airport. The nonstop daily flight to Amsterdam’s Schiphol Airport launches on May 2, 2015.

According to the airline, this summer Delta has increased its network out of Schiphol, adding extra services to New York-JFK, Detroit and Minneapolis/St Paul in March, with an additional frequency to Seattle/Tacoma starting on May 4. The airline will operate up to 19 peak-day nonstop flights, responding to increased demand for service between the U.S. and the Netherlands during the peak summer travel period.

Delta is also increasing travel options for customers flying between Italy and the United States this summer. The U.S. airline will be restarting numerous seasonal services throughout May and June 2015. Flights will operate from four Italian cities – Rome, Milan, Pisa and Venice – to Delta’s hubs in New York-JFK, Atlanta and Detroit.

Expanded service at Leonardo da Vinci-Fiumicino Airport, Rome

In addition to restarting its seasonal service to Detroit Metropolitan-Wayne County Airport on May 2, 2015, Delta will launch a second frequency to Hartsfield-Jackson Atlanta International Airport, effective May 23. The extra services complement Delta’s existing daily flights to Atlanta and New York-JFK, and take the total number of weekly seats on offer between Rome and the U.S. to over 14,000.

The seasonal flight from Rome to Detroit will operate daily using a Boeing 767-400 and the second Atlanta flight will operate up to six times weekly using a Boeing 767-300 aircraft.

Seasonal flights return to Venice and Pisa

Delta will restart a daily nonstop flight between Venice Marco Polo Airport and its Atlanta hub, effective June 2 using a Boeing 767-300 aircraft. The flight complements the existing daily New York-JFK service that was restarted at the end of March, meaning that Delta will operate two daily flights to the U.S. from Venice during the summer.

From Pisa, Delta will operate nonstop service to New York-JFK six times weekly using a Boeing 757-200 aircraft, effective June 16.

Extra service added at Milan Malpensa

Customers flying from Milan Malpensa Airport will benefit from a daily flight to Atlanta, effective June 17, complementing Delta’s existing daily service to New York-JFK. Operated using a Boeing 767-300 aircraft, the flight will add a further 3,150 weekly seats between Milan and the U.S..

Copyright Photo: Paul Bannwarth/AirlinersGallery.com. Boeing 767-332 ER N176DZ (msn 29697) approaches the runway at Zurich.

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New video from Delta: Stillness in Motion presented at TED 2015

Delta Air Lines (Atlanta) has issued this new video:

As the official airline sponsor of TED 2015 and the only airline that features TED Talks as part of its premium entertainment onboard, the social media team launched the interactive exhibit, “Stillness in Motion” at the annual conference in Vancouver.

Planely Speaking: The Battle for the Big Peach

Assistant Editor Aaron Newman

Assistant Editor Aaron Newman

Assistant Editor Aaron Newman

The Battle for the Big Peach

By Aaron Newman.

The world’s busiest airport will become the latest low-cost battleground this spring and summer as Spirit Airlines and Frontier Airlines deem Atlanta as their newest expansion target. By September 2015, Spirit will provide service to 15 cities from Atlanta; while Frontier will expand to 16 cities by the end of this month. With competition from Southwest and of course the hometown favorite, Delta Airlines; does Spirit and Frontier stand a chance at success in the big peach?

Frontier Airlines and Spirit Airlines routes from Atlanta

Frontier-Spirit ATL Graph

In the case of Frontier, Delta serves all of the above markets, and Southwest will compete on seven of the markets. In the case of Spirit, Delta operates service to all of the above markets except Atlantic City; while Southwest again competes on seven of the above routes.

It’s likely this aggressive growth stems from the purchase of AirTran Airways by Southwest; AirTran’s disappearance from ATL left a void for a true low-cost carrier in Atlanta. Frontier and Spirit perceive Atlanta as an opportunity to use their low-cost model to attract cost conscious north Georgia residents to travel where they otherwise wouldn’t.

Data from the US Department of Transportation demonstrates that during the 3rd quarter of 2014, Atlanta’s average domestic fare was $439, while, the average US domestic fare was $397–Spirit and Frontier advertise fares starting as low as $19 one-way.

Spirit ATL Map

Source: Spirit Airlines.

In a contrast to Cleveland, another market where Frontier and Spirit are doing battle in 2015, Atlanta is not an airport where any major airline has made a substantial cutback. Southwest has made some minor changes to its route network post-merger, but nothing like the 60% capacity reduction seen by United Airlines at Cleveland. Frontier and Spirit are aware that they are in for a battle before one airline eventually wins out. Can both of these airlines survive the threat from each other, as well as the size of Delta and the loyal followings of Southwest’s customers?

Frontier ATL Fares

Source: Frontier Airlines.

Who wins out?

Above Copyright Photo: Tony Storck/AirlinersGallery.com. Spirit Airlines Airbus A319-132 N503NK (msn 2470) prepares to land at its Fort Lauderdale-Hollywood International Airport (FLL) base.

Spirit has been growing quickly and their experience as an established ULCC (ultra-low cost carrier) gives them the upper hand in this turf war with Frontier. Spirit has a slightly lower CASM (cost per available seat mile) than Frontier (marketrealist.com), giving them the ability to offer lower fares while still maintaining profitability. The newly announced routes come at a time in which Spirit is preparing for a wave of aircraft deliveries (15 aircraft in 2015) that will push its fleet to 80 aircraft by the end of 2015–an added incentive to make Atlanta work for their bottom line. Spirit had long considered an Atlanta expansion, calculating that the Southwest Airlines acquisition of AirTran Airways would increase fares. What Spirit may not have expected, however, was that Frontier Airlines would try the same approach at the same time.

Copyright Photo Above: Ken Petersen/AirlinersGallery.com. Frontier Airlines’ Airbus A320-214 N227FR (msn 6184) is pictured at Raleigh/Durham.

Frontier’s route network is accustomed to change and though I believe one ULCC can gain market share in Atlanta, I predict Frontier will eventually leave or drastically reduce service in Atlanta due to disappointing bookings and slim margins caused by over-capacity. Ultimately, consumers will make the decision, regarding which ULCC they prefer, specifically on routes in which the two carriers overlap, such as Atlanta to Chicago (O’Hare) and Las Vegas. But, as mentioned, Spirit is believed to retain a slight cost advantage over Frontier, ultimately giving them the upper hand.

Surviving the big guys

In a recent presentation to investors, Spirit Airlines estimated Delta has an adjusted cost per available seat mile (CASM) 59% higher than Spirit (Atlanta Journal Constitution). Even though Delta has created a new low-fare class with limited perks in an attempt to compete with ULCC’s, Spirit predicts legacy carriers will eventually narrow their focus to high-yield passengers on over-lapping routes. This allows Spirit to concentrate their efforts on their favorite audience—the leisure traveler. Additionally, Spirit has historically coexisted well in other fortress hubs, like; Detroit, Minneapolis, Houston (IAH), and Dallas (DFW), proving they can effectively compete with larger, legacy carriers.

ATL Market Share

I conclude that Spirit and Frontier are not entering Atlanta to gain market share from Delta, but rather Southwest. Delta’s numerous frequencies, extensive network, and corporate contracts are no match for Frontier and Spirit. The two ULCC’s believe they can use their ultra-low fares to stimulate cost-sensitive passengers that have otherwise been priced out of air travel. This business model does not directly compete with Delta, but rather Southwest.

The decisions by Spirit and Frontier to grow in Atlanta demonstrate that Southwest is no longer the low fare leader it once was. Their cost structure is higher than that of the ULCC’s competing for lower yield passengers. In a recent interview, Frontier’s president Barry Biffle called Southwest a “mid-cost carrier,” and said that in Atlanta, “fares are relatively high compared to the average,” (Atlanta Journal Constitution) creating an opportunity for a ULCC to come in and thrive.

Delta Air Lines reports first quarter adjusted net income of $372 million

Delta Air Lines (Atlanta) today reported financial results for the March 2015 quarter kicking off the airlines earnings reporting period. Key points include according to the airline:

Delta’s adjusted pre-tax income1 for the March 2015 quarter was $594 million, an increase of $150 million over the March 2014 quarter on a similar basis. Delta’s adjusted net income for the March 2015 quarter was $372 million, or $0.45 per diluted share, and its adjusted operating margin was 8.8 percent.

On a GAAP basis, Delta’s March quarter pre-tax income was $1.2 billion, operating margin was 14.9 percent and net income was $746 million, or $0.90 per share.

Results include $136 million in profit sharing expense, recognizing Delta employees’ contributions toward meeting the company’s financial goals.

The company used its strong cash generation in the quarter to return $500 million to shareholders through dividends and share repurchases and to make $904 million in pension contributions.

“Delta’s business is performing well, producing the best March quarter, both operationally and financially, in Delta’s history,” said Richard Anderson, Delta’s chief executive officer. “While the strong dollar is creating headwinds with international revenues, it also contributes to the lower fuel prices which will offset those headwinds with over $2 billion in fuel savings this year. We are looking at June quarter operating margins of 16-18 percent with over $1.5 billion of free cash flow—these record results and cash flows show that the strong dollar is a net positive for Delta.”

Capacity Actions in Light of Strong Dollar and Lower Energy Prices

To address currency headwinds, Delta plans to reduce its international capacity by 3 percent year over year for the winter schedule. These international reductions, combined with 2 percent domestic growth, will result in flat system capacity for the December quarter. Capacity adjustments will be focused on markets that have been most affected by the strong dollar and markets where demand has been negatively impacted by the decline in oil prices. Key actions for the December quarter will include a 15-20 percent reduction in service from Japan, a 15 percent reduction to Brazil, a 15-20 percent reduction to Africa, India and the Middle East, and suspension of service to Moscow for the winter season.

Revenue Environment

Delta’s operating revenue improved 5 percent, or $472 million, in the March 2015 quarter compared to the March 2014 quarter. Traffic increased 3.6 percent on a 5.0 percent increase in capacity, which includes 2 points due to capacity removed in the first quarter of 2014 as a result of winter storms. Foreign exchange pressured revenue by $105 million for the quarter.

Passenger revenue increased 3 percent, or $246 million, compared to the prior year period.

Passenger unit revenue (PRASM) decreased 1.7 percent year over year primarily driven by 1.5 points of negative foreign exchange impact.

Cargo revenue was unchanged from the prior year period as higher volumes offset lower yields.
Other revenue increased 22 percent, or $226 million, driven by SkyMiles revenues and third-party refinery sales.

“For the March quarter, Delta delivered solid 5 percent top line growth and a 17.8 percent operating margin at market fuel prices,” said Ed Bastian, Delta’s president. “The substantial benefit from lower fuel prices will again more than offset the unit revenue decline of 2 to 4 percent for the June quarter to produce operating margins north of 20 percent at market fuel prices.”

Fuel

Adjusted fuel expense2 increased $23 million as lower market fuel prices were offset by $1.1 billion of settled hedge losses, including $300 million of early settlements of contracts originally settling in the second half of 2015 as the company restructured its hedge book. Delta’s average fuel price was $2.93 per gallon for the March quarter. Operations at the refinery produced an $86 million profit for the March quarter, a $127 million improvement year-over-year.

Cost Performance

Consolidated unit cost adjusted for fuel expense, profit sharing and special items (CASM-Ex3), was down 1.4 percent in the March 2015 quarter on a year-over-year basis, with higher capacity, foreign exchange and the benefits of Delta’s domestic refleeting and other cost initiatives offsetting the company’s investments in its employees, products and operations.

“With nearly 10 percent of our expenses non-dollar denominated, we are seeing cost tailwinds from the strong dollar which should benefit our non-fuel unit costs by 1 point in the June quarter,” said Paul Jacobson, Delta’s chief financial officer. “With this currency benefit and the strong cost control that is a hallmark of the Delta culture, we are on track to deliver our eighth consecutive quarter of non-fuel unit cost growth below 2 percent in the June quarter.”

Adjusted for special items, non-fuel operating expense in the quarter increased $333 million year-over-year driven by wage increases, profit sharing, and higher volume-related expenses. These cost increases were partially offset by foreign exchange and savings from Delta’s cost initiatives.

Non-operating expense, adjusted for special items, declined by $34 million as a result of $55 million in lower interest expense, partially offset by an $11 million higher foreign exchange loss on foreign-denominated assets and liabilities compared to the first quarter of 2014.

Cash Flow

Cash from operations during the March 2015 quarter was $1.1 billion and free cash flow was $511 million, driven by the company’s March quarter profit and the normal seasonal increase in advance ticket sales. Cash flow from operations and free cash flow exclude the return of fuel hedge margin posted. Capital expenditures during the March 2015 quarter were $586 million, including $411 million in fleet investments. During the quarter, Delta’s net debt and capital lease maturities were $260 million.

With its strong cash generation in the March 2015 quarter, the company returned $500 million to shareholders. The company paid $75 million in cash dividends and repurchased 9.3 million shares for $425 million. Delta also made over $900 million in pension contributions during the quarter.

Delta ended the quarter with adjusted net debt4 of $7.4 billion, including cash held by counterparties as hedge margin. The company has achieved nearly $10 billion in net debt reduction since 2009, resulting in a roughly 50% reduction in annual interest expense.

GAAP Metrics Related to Cost Performance and Cash Flow

On a GAAP basis compared to the March 2014 quarter, consolidated CASM declined 8 percent, total operating expense was down $306 million, and fuel expense declined $600 million. GAAP fuel cost per gallon for the quarter was $2.29. Non-operating expenses for the quarter decreased by $73 million. Cash from operations for the March 2015 quarter was $1.6 billion and the company ended the quarter with debt and capital lease obligations of $9.6 billion on a GAAP basis.

June 2015 Second Quarter Guidance

Following are Delta’s projections for the June 2015 quarter:

2Q15 Forecast

Operating margin

16% – 18%
Fuel price, including taxes, settled hedges and refinery impact

$2.35 – $2.40
CASM – Ex (compared to 2Q14)

Up 0 – 1%
System capacity (compared to 2Q14)

Up ~3%

Special Items

Special items, net of taxes, in the March 2015 quarter totaled $374 million, including:

$372 million for mark-to-market adjustments and settlements on fuel hedges;
$8 million for mark-to-market adjustments on hedges owned by Virgin Atlantic; and
a $6 million charge for fleet and other items, primarily associated with Delta’s domestic fleet restructuring initiative.
Special items, net of taxes, in the March 2014 quarter totaled $68 million, including:

a $31 million charge associated with Delta’s domestic fleet restructuring;
a $21 million mark-to-market adjustment on fuel hedges;
an $11 million charge for debt extinguishment; and
a $5 million charge for mark-to-market adjustments on hedges owned by Virgin Atlantic.

End Notes

(1) Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release to the comparable GAAP metric and provides the reasons management uses those measures.

(2) Adjusted fuel expense reflects, among other things, the impact of mark-to-market (“MTM”) adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settling during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. During the March 2015 quarter, we paid $302 million to early settle contracts that were originally scheduled to expire in the second half of 2015. See Note A for a reconciliation of adjusted fuel expense and average fuel price per gallon to the comparable GAAP metric.

(3) CASM – Ex: In addition to fuel expense, profit sharing and special items, Delta believes adjusting for certain other expenses is helpful to investors because other expenses are not related to the generation of a seat mile. These expenses include aircraft maintenance and staffing services Delta provides to third parties, Delta’s vacation wholesale operations, and refinery cost of sales to third parties. The amounts excluded were $293 million and $184 million for the March 2015 and March 2014 quarters, respectively. Management believes this methodology provides a more consistent and comparable reflection of Delta’s airline operations.

(4) Adjusted net debt includes $383 million of hedge margin receivable, which is cash that we have posted with counterparties as hedge margin. See Note A for additional information about our calculation of adjusted net debt.

Fiona Cincotta, senior market analyst at www.finspreads.com commented on the financial results:

“Delta reported the best first quarter, from a financial perspective, in the company’s history. The airline announced profits, which more than tripled to $746 million from $213 million a year ago and an increase in revenue of 5% to $9.4 billion. The strong dollar has dented Delta’s international revenue to the tune of about $105 million, however it has also been a factor in the decline of the price of oil which has meant cheaper fuel for the company so the strong dollar is actually net positive for Delta. Furthermore Delta expects to save more than $2 billion on fuel this year and also expects record profit margins and free cash flow for the second quarter.

Despite these encouraging results, which beat analyst’s expectations, Delta has also announced that it will be reducing international flights by a further 3% during the last 3 months of the year. This seems to be quite a prudent move by a company who has reported the best first quarter in its history. However, as big price cuts are no longer a significant part for large US airline’s strategy, pulling back on flights seems like a sensible option given the expected strength of the dollar going forward.”

Copyright Photo: TMK Photography/AirlinersGallery.com. Delta is now leasing the former AirTran Airways Boeing 717 fleet from Southwest Airlines. Boeing 717-231 N921AT (msn 55082) taxies at Toronto (Pearson).

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Delta to add Milwaukee – Boston flights

Delta Air Lines (Atlanta) is planning to add Delta Connection Bombardier CRJ900 service on the Milwaukee – Boston route starting on June 4 according to Airline Route.

Copyright Photo: Michael B. Ing/AirlinersGallery.com.

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