Delta Bets Heavily on Third Quarter, Upgrade Purchases
Joe Cortez July 19, 2016
New looks into Delta’s business model comes as airline releases second quarter profits.
Delta Air Lines accepts the inevitability of losing casual travelers in the summer months, as they are looking forward to welcoming more business travelers in the fall. On July 14, the airline announced their second quarter pre-tax profit at $1.7 billion, an increase of $100 million from the same time last year.
However, the increase in profitability did come with some turbulence. The airline reported a 4.9 percent decline in unit revenues, which was offset by savings from lower fuel costs. Delta executives expect to close this gap in the third quarter through increased revenue per available seat-mile and more flyers purchasing upgrades.
According to analysis by The Motley Fool, Delta can still expect a drop in passenger revenue until the airline implements their planned capacity cuts in August. Once complete, revenue is expected to increase again by September, alongside anticipated increases in fuel costs.
Moreover, the airline expects more flyers will pay for in-cabin upgrades as well. Once the airline began selling their premium economy product, Comfort+, in May, paid load factor increased to 46 percent. Executives say the new product will be part of their revenue strategy moving forward.
“We now expect Comfort+ to generate nearly $300 million of upsell revenues in the second half of 2016,” Delta president Glenn Hauenstein told investors during the profit announcement, according to The Motley Fool. “With further upside in 2017 as we begin the international rollout scheduled to be complete by the end of 2017.”
As for the potential for Britain to leave the European Union in the next two years, the airline is preparing for that situation as well. Executives told investors the airline would reduce capacity to Britain by six percent in the winter while working closely with partner Virgin Atlantic to make appropriate capacity changes.
The airline also announced they were able to create returns for both shareholders and flyers in the second quarter of 2016. The returns included investing $880 million in the fleet while returning $103 million in dividends.
[Photo: Delta Air Lines]
