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Old Mar 11, 2014, 10:38 am
  #6  
spin88
 
Join Date: Feb 2008
Programs: 6 year GS, now 2MM Jeff-ugee, *wood LTPlt, SkyPeso PLT
Posts: 6,526
Originally Posted by UA-NYC

Looking to the future, one of Anderson's biggest goals is to strengthen Delta's already powerful hubs. That's where the big money is, now and in the future. Delta's portfolio of hubs -- chiefly Atlanta, Detroit, LaGuardia, and Minneapolis -- form the most lucrative collection of any airline, according to data assembled by Vaughn Cordle of Ionosphere Capital, an investment advisory firm focused on airlines

Goes against the prevailing viewpoint of some that UA has the most unbeatable / valuable hubs.


Until a couple of years ago Delta faced a big disadvantage: an undersize position in New York City. For Anderson it was essential to make New York a big domestic hub as well as an international gateway so that Delta could offer its full package to corporate clients. Since his arrival the CEO has lavished almost all of Delta's non-aircraft investment on expanding at J.F.K. and LaGuardia.

The move is paying off: Delta now handles 40% of the passengers coming and going from LaGuardia. And its share of the corporate market in New York has jumped from 28% to 37% in three years. In the past Delta did little business with the financial services giants that dominate business travel in New York. Today it's No. 1 or No. 2 with almost all the big banks and brokerages, including Citigroup, J.P. Morgan Chase, and Morgan Stanley.


Hmmm...I wonder where that sourcing has come from?

Definitely worth a read.
The corporate share 411 is very interesting, and a big change. My guess is that the NY Share came from UAL and AA, but mostly from UAL.

I found this interesting:

"Delta's share in Detroit is 79%, and in Minneapolis it's 77%. United's traffic concentration at its hubs is a little lower on average, and American's share is actually slightly higher.

But Delta does the best job of leveraging its hubs to attract more high-paying business passengers. The key to pricing power is for an airline to attract the largest possible share of traffic on each "city pair" -- the route between a hub airport and the destination. Delta has 80% of the seats from Atlanta to Minneapolis and 67% of traffic from Atlanta to New York's LaGuardia. "That explains why Delta gets the best 'revenue premiums,' the highest fares per mile flown, in the industry," explains Cordle. "

We have discussed this to death, how DAL or AA fly mainline, and UAL flies one or two RJs or nothing (see ORD-ATL, EWR-ATL, until recently SFO/LAX-ATL, ORD-MIA) or one Mainline, and the rest RJs on a route, while the OAL flies mainline (see e.g. ORD-DFW). United is offering only an inferior product on major markets, and just giving up the revenue from high-paying business passengers.

Originally Posted by sinoflyer
UA still has the best route structure, imo, but you can't dismiss the fact that DL faces little competition at its biggest hubs -- ATL, DTW, and MSP -- and that's where I think the "lucrative" comes from.

AFAIK DL has not been able to make LGA/JFK profitable. I do not have solid facts to back that up, but at least they are making huge investments at JFK. Still, the fact that DL's NYC strategy includes in part transferring traffic between LGA and JFK makes its route network less optimal than UA (again, imo), but that does not correlate with the airlines' overall profitability as we are currently witnessing.
I don't think Anderson is looking at if a particular hub is immediately profitable, he is looking at how having coverage/network in an area attracts major corporate accounts, which in turn provides revenue on the rest of the network.

That Delta picked up 9% of the corporate market in NYC, also raises (due to the lock in effect of mileage programs and corporate deals) revenue in other markets as well. JFK/LGA, VS, SEA, LAX are all areas where Delta is building out its network, not assuming that they will be immediately profitable (they will not) but knowing that long term its where Delta needs to be. It is the exact opposite of the quarter by quarter slash and burn management style Jeff and Co. are using.

More generally though I think that Nate Silver's very good analysis:

http://fivethirtyeight.blogs.nytimes...-unfair-fares/

shows that when looking at the size of the airport along with its revenue premium due to "fortress hub" that Delta is probably in the weakest position. Unless they have fallen (and at EWR they may have with CO no longer being the only network carrier in NYC) pmCO had the strongest, by far, hubs. Atlanta does not have a major hub premium, and Detroit (Delta's second most important hub) only has a weak premium.

I just don't buy that Delta is doing well as its gouging its hubs. MSP gets a premium, but the traffic there is small. Delta gets completion ex-ATL from WN, ex-LAX from everyone, ex-JFK/LGA from everyone, and now is going into SEA where it will get competition from AS, and on its new pacific routes from foreign carriers AND UAL. IMHO Delta is doing well by providing better service, and better product than the other network carriers are. A little better than AA and a lot better than UAL.
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