Delta cautiously optimistic about JV with Korean Air?
Jul 27, 2014, 7:46 am
#1
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Delta cautiously optimistic about JV with Korean Air?
During the 2Q earnings call:
Analyst:
"Hi, thanks. Good morning. Richard, I’m wondering if you could talk about given the positive roll that your JVs and partnerships are having on the Atlantic side and down the Latin America. I mean are there opportunities for that on the Pacific side? It just seems like kind of getting that capacity situation under control, is going to be a little bit tougher than only Atlantic?"
Richard Anderson:
"Yes. We do have opportunities in the Pacific. I think we’ve some great experience that we can attain and take from both the trans-Atlantic as well as what we are doing in Mexico and Brazil and apply to some of our Pacific relationships. Clearly Korea is one that we have had a challenge over the last several years in developing a JV construct and some improved revenue and commercial sharing initiatives. I am cautiously optimistic that we can make some progress as we look forward to the next couple of years with Korean and then in addition beyond that much longer-term is China."
Analyst:
"Hi, thanks. Good morning. Richard, I’m wondering if you could talk about given the positive roll that your JVs and partnerships are having on the Atlantic side and down the Latin America. I mean are there opportunities for that on the Pacific side? It just seems like kind of getting that capacity situation under control, is going to be a little bit tougher than only Atlantic?"
Richard Anderson:
"Yes. We do have opportunities in the Pacific. I think we’ve some great experience that we can attain and take from both the trans-Atlantic as well as what we are doing in Mexico and Brazil and apply to some of our Pacific relationships. Clearly Korea is one that we have had a challenge over the last several years in developing a JV construct and some improved revenue and commercial sharing initiatives. I am cautiously optimistic that we can make some progress as we look forward to the next couple of years with Korean and then in addition beyond that much longer-term is China."
Jul 27, 2014, 8:20 am
#3
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Q - With the other two major U.S. carriers overflying or routing most through Japan, how is the relationship with Korean?
A - It is evolving because historically Delta had no network in Korea or in Asia. There was only one nonstop flight, but after the Northwest merger, all of a sudden we had this huge network.
Naturally, the traffic was shifted more onto Delta’s network rather than Korean’s. However, we still have a good relationship, and we have ambitions to make our relationship more successful for our partners at Korean.
Q - Could we see a joint-venture with Korean?
A -We have an ATI with them, but we are evolving to the joint-venture. We want to see it evolve, and they have been a good partner for a long time. Going through this adjustment phase from one nonstop flight a day to Asia to multiple nonstop to Asia takes some adjusting.
Jul 27, 2014, 9:08 am
#4
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Yep that one! Smells like a negotiation tactic to pressure Korean into a JV. That earnings call transcript along with this recent RA interview leads me to believe that no deal has been reached thus far due to the sides not agreeing on a numbers split:
Q - With the other two major U.S. carriers overflying or routing most through Japan, how is the relationship with Korean?
A - It is evolving because historically Delta had no network in Korea or in Asia. There was only one nonstop flight, but after the Northwest merger, all of a sudden we had this huge network.
Naturally, the traffic was shifted more onto Delta’s network rather than Korean’s. However, we still have a good relationship, and we have ambitions to make our relationship more successful for our partners at Korean.
Q - Could we see a joint-venture with Korean?
A -We have an ATI with them, but we are evolving to the joint-venture. We want to see it evolve, and they have been a good partner for a long time. Going through this adjustment phase from one nonstop flight a day to Asia to multiple nonstop to Asia takes some adjusting.
Q - With the other two major U.S. carriers overflying or routing most through Japan, how is the relationship with Korean?
A - It is evolving because historically Delta had no network in Korea or in Asia. There was only one nonstop flight, but after the Northwest merger, all of a sudden we had this huge network.
Naturally, the traffic was shifted more onto Delta’s network rather than Korean’s. However, we still have a good relationship, and we have ambitions to make our relationship more successful for our partners at Korean.
Q - Could we see a joint-venture with Korean?
A -We have an ATI with them, but we are evolving to the joint-venture. We want to see it evolve, and they have been a good partner for a long time. Going through this adjustment phase from one nonstop flight a day to Asia to multiple nonstop to Asia takes some adjusting.
How long can they continue to operate loss making Trans pacific routes?
Jul 27, 2014, 11:01 am
#5
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Anderson seems to like the method of signaling in public to advance negotiations. Check the many remarks re: suitability of aircraft and, more recently, pricing, regarding the open widebody aicraft RFP. The man is a lawyer by training and picks the words, time and place for remarks very carefully.
Jul 27, 2014, 11:04 am
#6
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Agree 100%. I was going to say that maybe another reason for perhaps advances in DL-KE JV talks is the fact that KE had a 2013 net loss of $356.7 million, while Delta is killing it right now. Another thread mentioned that KE load factor was down 5% after DL cut/reduced codeshares. All this could lead to pressure for KE to finally strike a deal with DL.
Jul 27, 2014, 11:13 am
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Yep that one! Smells like a negotiation tactic to pressure Korean into a JV. That earnings call transcript along with this recent RA interview leads me to believe that no deal has been reached thus far due to the sides not agreeing on a numbers split:
Q - With the other two major U.S. carriers overflying or routing most through Japan, how is the relationship with Korean?
Q - With the other two major U.S. carriers overflying or routing most through Japan, how is the relationship with Korean?
On the KE issue though I just don't see the traveling public taking to it. Korean is nowhere near on the level in customer satisfaction as Cathay, Singapore, or even any of Japan's airlines. I see Delta losing in a JV with KE and KE being the major financial gainer.
Jul 27, 2014, 11:33 am
#8
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I'm confused. Now that NW is part of Delta, Delta routes most of their traffic through Japan. American to an extant uses both Japan and Hong Kong to route their traffic.
On the KE issue though I just don't see the traveling public taking to it. Korean is nowhere near on the level in customer satisfaction as Cathay, Singapore, or even any of Japan's airlines. I see Delta losing in a JV with KE and KE being the major financial gainer.
On the KE issue though I just don't see the traveling public taking to it. Korean is nowhere near on the level in customer satisfaction as Cathay, Singapore, or even any of Japan's airlines. I see Delta losing in a JV with KE and KE being the major financial gainer.
1. Delta has been significantly reducing traffic routed through Japan. This trend will continue as Japanese demand drops, and as more new aircraft are delivered, etc...
2. Japan Airlines and Korean are both "4 star airlines" in the Skytrax pay to play "quality" awards. I've always heard great things about Korean myself.
3. It always amuses me when people mention Cathy and Singapore. You might want to take a look at their financial statements. If I recall correctly, Singapore had a full year profit of something like $200 million. I think this is after they account for the $300million (or so) that Delta paid them for 49% of VS. Cutbacks are coming, and have already started. I wouldn't be surprised to see a few airlines (malaysian, thai, etc.) disappear over the next few years as LCC's eat their lunch in a market that is extraordinarily price sensitive.
Jul 27, 2014, 11:55 am
#9
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I agree with the thoughts that much of the KE issue in recent years has been positioning for a change in the relationship, not a cancellation of such.
DL does not "need" KE, but KE is a big value add. DL metal to Asia is limited (even with SEA). And frankly, many of DL's customers do not trust the China partners and would prefer KE.
From the other side, it is even more important for KE to have a large US partner, and anybody other than DL would have conflicts. Probably more important to KE, which might be the cause of the problem. DL realizes that it is an asymmetric relationship, and therefore is pushing for terms they like.
So JV are not, they are just trying to figure out how to divide the pot.
DL does not "need" KE, but KE is a big value add. DL metal to Asia is limited (even with SEA). And frankly, many of DL's customers do not trust the China partners and would prefer KE.
From the other side, it is even more important for KE to have a large US partner, and anybody other than DL would have conflicts. Probably more important to KE, which might be the cause of the problem. DL realizes that it is an asymmetric relationship, and therefore is pushing for terms they like.
So JV are not, they are just trying to figure out how to divide the pot.
Jul 27, 2014, 12:11 pm
#10
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I agree with the thoughts that much of the KE issue in recent years has been positioning for a change in the relationship, not a cancellation of such.
DL does not "need" KE, but KE is a big value add. DL metal to Asia is limited (even with SEA). And frankly, many of DL's customers do not trust the China partners and would prefer KE.
From the other side, it is even more important for KE to have a large US partner, and anybody other than DL would have conflicts. Probably more important to KE, which might be the cause of the problem. DL realizes that it is an asymmetric relationship, and therefore is pushing for terms they like.
So JV are not, they are just trying to figure out how to divide the pot.
DL does not "need" KE, but KE is a big value add. DL metal to Asia is limited (even with SEA). And frankly, many of DL's customers do not trust the China partners and would prefer KE.
From the other side, it is even more important for KE to have a large US partner, and anybody other than DL would have conflicts. Probably more important to KE, which might be the cause of the problem. DL realizes that it is an asymmetric relationship, and therefore is pushing for terms they like.
So JV are not, they are just trying to figure out how to divide the pot.
Jul 27, 2014, 12:13 pm
#11
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I object to the 2-3-2 seating in business on some KE aircraft.
Jul 27, 2014, 12:19 pm
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Jul 27, 2014, 12:48 pm
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Jul 27, 2014, 1:14 pm
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You appear to have a view of Trans Pacific aviation circa 2003.
1. Delta has been significantly reducing traffic routed through Japan. This trend will continue as Japanese demand drops, and as more new aircraft are delivered, etc...
They may have added non-stops, so have AA/UA. However they still route heavily through NRT and/or HND. In fact some of their authority to fly requires them to fly through Japan.
2. Japan Airlines and Korean are both "4 star airlines" in the Skytrax pay to play "quality" awards. I've always heard great things about Korean myself.
Sorry, but that makes me laugh. Numerous rankings list KE no where near that high. They may have been at one time, but in recent years they've taken a hit. Still miles ahead of being the worst, but even Asiana out places. Their seating configuration in premium cabins leaves something to be desired. BTW Emirates is considered a 4 star airline. Are you really able to say KE is on par with Emirates?
3. It always amuses me when people mention Cathy and Singapore. You might want to take a look at their financial statements. If I recall correctly, Singapore had a full year profit of something like $200 million. I think this is after they account for the $300million (or so) that Delta paid them for 49% of VS. Cutbacks are coming, and have already started. I wouldn't be surprised to see a few airlines (malaysian, thai, etc.) disappear over the next few years as LCC's eat their lunch in a market that is extraordinarily price sensitive.
Singapore is normally always number one or number two in terms of customer satisfaction. Plus they are able to consistently pull in higher airfares than KE. Sorry to disappoint but they are able to pay the bills with the fares those premium passengers pay. If not TPAC, then on Australia-Singapore-Middle East/UK they are huge money makers. I've been not able to buy J/F class tickets on the LHR/SIN/SYD routes before due to demand, and trust me those seats are not cheap.
Bottom line they need to go with one of the three Chinese airlines that are members of Skyteam. They may go with KE as the old fallback, but I don't see it being the best choice financially.
1. Delta has been significantly reducing traffic routed through Japan. This trend will continue as Japanese demand drops, and as more new aircraft are delivered, etc...
They may have added non-stops, so have AA/UA. However they still route heavily through NRT and/or HND. In fact some of their authority to fly requires them to fly through Japan.
2. Japan Airlines and Korean are both "4 star airlines" in the Skytrax pay to play "quality" awards. I've always heard great things about Korean myself.
Sorry, but that makes me laugh. Numerous rankings list KE no where near that high. They may have been at one time, but in recent years they've taken a hit. Still miles ahead of being the worst, but even Asiana out places. Their seating configuration in premium cabins leaves something to be desired. BTW Emirates is considered a 4 star airline. Are you really able to say KE is on par with Emirates?
3. It always amuses me when people mention Cathy and Singapore. You might want to take a look at their financial statements. If I recall correctly, Singapore had a full year profit of something like $200 million. I think this is after they account for the $300million (or so) that Delta paid them for 49% of VS. Cutbacks are coming, and have already started. I wouldn't be surprised to see a few airlines (malaysian, thai, etc.) disappear over the next few years as LCC's eat their lunch in a market that is extraordinarily price sensitive.
Singapore is normally always number one or number two in terms of customer satisfaction. Plus they are able to consistently pull in higher airfares than KE. Sorry to disappoint but they are able to pay the bills with the fares those premium passengers pay. If not TPAC, then on Australia-Singapore-Middle East/UK they are huge money makers. I've been not able to buy J/F class tickets on the LHR/SIN/SYD routes before due to demand, and trust me those seats are not cheap.
Bottom line they need to go with one of the three Chinese airlines that are members of Skyteam. They may go with KE as the old fallback, but I don't see it being the best choice financially.
Last edited by flyerCO; Jul 27, 2014 at 1:20 pm
Jul 27, 2014, 2:00 pm
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yup and this is why KE is hurting even more these days. They chose the battle with Delta and lost. Now they are left with Delta wanting even more and they essentially have to take it if they want DL traffic back on KE metal. Overall I think this was a smart move by Delta; wouldn't be surprised to see a JV announcement in the next 6-9 months.