Delta’s Fuel Costs Keep Dropping, But Its Airfares Are Staying the Same

Delta Air Lines benefitted from plunging fuel prices during the fourth quarter but officials are steadfastly declining to entertain the prospect of delivering lower airfares and instead plan on using the windfall to pay down debt and to return cash to shareholders.

During the airline’s fourth quarter earnings call, CEO Richard Anderson said the current economic environment is “remarkably good” for Delta and the aviation industry as a whole.

“There has never been a better time for Americans to go to Europe or travel around the world,” Anderson said.

Anderson might have thrown in a caveat about recent terrorist-related evens in Belgium and Paris, which has impacted tourism, at least in the short term.

Paying down debt, Anderson said, will be a top priority for use of Delta’s free cash flow, and it would be up to the board to decide whether shareholders get cash returned, as well.

Lower fuel prices would put plenty of pressure on Delta to lower fares if competitors do so, but Delta officials aren’t giving any ground especially regarding domestic fares.

Anderson did indicate that pricing pressures could be more acute in 2015 in foreign points of sale where local economies are dependent on oil payments from the U.S.

Glen Hauenstein, Delta’s chief revenue officer, said the airline is experiencing an adverse revenue impact in the Middle East from falling oil prices, in Africa from fears about Ebola, and in Russia because of the political situation.

Pilot Shortage

In other news, Anderson expressed concern about the pilot shortage at regional airlines, which he attributed to the FAA raising its flight-time requirements in the form of the 1,500 hour rule.

The 1,500-hour rule, couple with a “significant wave of retirements over the next decade” among pilots at Delta and its competitors, is contributing to the pilot crunch, Anderson said.

Diminished Importance of Online Travel Agencies

Over the past few years, Delta has been paring its relationships with online travel agencies.  For example, CheapOair doesn’t display Delta’s flights online.

When asked how Delta’s Basic Economy fare would be displayed on online travel agency sites, Anderson said Delta doesn’t have “full content” agreements in many of its distribution partnerships.

The airline’s investments in Delta.com have diminished the importance of its relationships with online travel agencies to an extent, Anderson said.

“Overall the OTAs play a much smaller role in the distribution strategy,” Anderson said.