Delta Air Lines (DAL.N) focuses on more profitable premium travel to prepare for a recession.
The U.S. carrier’s CEO, Ed Bastian, told Reuters that all planes would feature premium seats this summer. Around 2% of Delta’s fleet, dozens of 50-seat planes, lack the seats.
The Atlanta-based carrier announced quarterly profits on Thursday and said it would offer 15,000 more premium seats a day throughout its network this year than pre-pandemic. It wouldn’t elaborate.
Bastian said Delta wants to entice customers prepared to pay for anything besides a seat, helping drive company profitability.
“It also lifts us out of the commodity trap,” he remarked.
It expects spending by rich leisure consumers, who have been flocking to luxury cabins, to be less affected in a downturn. In December, President Glen Hauenstein dubbed them a “wonderful shock absorber” for sluggish corporate bookings.
Rivals American Airlines and United Airlines (UAL.O) also want premium income. United forecasts 53 premium seats per North American trip by 2026, up 75% from 2019. America wants to boost long-haul premium seats by 45% by 2026.
“Travel at large, not only in terms of air travel, but the totality of it is stable, if not expanding as a share of overall GDP,” American’s chief commercial officer Vasu Raja said. “Inflation is startling in this environment.”
America and the United don’t publish premium seat income. However, Delta’s passenger revenue has increased three percentage points to 38% since the outbreak.
Bastian said premium cabins would contribute one to two percentage points to Delta’s income each year for the next few years.
They’ll take 30% of Delta’s seats next year, up two percentage points from 2019. The mix will rise when Boeing MAX 737-10 planes arrive in 2025 with 35% premium seats.
Due to this expansion, Delta’s low-fare basic economy seats are currently fewer than 5% of its seats. In addition, the carrier may increase income via loyalty credit card fees, checked luggage, and additional legroom.
Delta expects to generate over 60% of company revenue from upmarket seats and non-ticket sources next year, up from 53% before the epidemic.
Premium seats offer more comfort and better amenities at airports and in-flight and may cost twice as economy tickets. Analysts claim they can make airlines seven times more money than other cabins.
Bastian said Delta’s premium cabin profitability and revenue growth had outpaced low-cost tickets since the outbreak. Their research suggests that almost two-thirds of consumers want to buy premium seats again.
Robert Mann, a former airline CEO of a consultancy business, said this strategy relies on on-time arrivals and departures. He called it a litmus test.
Delta and other carriers struggled last summer. Flight cancellations and delays caused passenger distress, so the airline capped flights for the year.
Notwithstanding such missteps, OAG and Cirium statistics revealed Delta as the most punctual U.S. airline last year.
Bastian said Delta wants to improve. “Creating a premium product that consumers will be late or canceled on doesn’t matter,” he added.
Post-pandemic travel habits drive premium income.
Airline officials believe hybrid work arrangements allow employees to combine business and leisure travel, allowing consumers with disposable cash to travel more.
Late last year, United CEO Scott Kirby said hybrid employment makes every weekend a holiday.
It’s helping airlines fill business passengers’ high-margin seats. That reduces airline cyclicality, according to experts.
American Airlines, for instance, gets roughly half its income from business-leisure travelers. But, according to the airline, these travelers spend 40% more than corporate customers.
Airlines for America said corporate travel made up 50% of passenger income at major U.S. carriers before the epidemic.
“Customer purchasing power is vital,” said OAG senior analyst John Grant. Travel and vacations are becoming essential.”
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