Stock markets globally may have hit a lot of turbulence so far in 2016 but Delta Air Lines management is bullish on the U.S. economy and demand for corporate travel in particular.
During Delta’s fourth quarter and full-year earnings call, Glen Hauenstein, executive vice president of network planning and revenue management, said “we are pretty optimistic” through the early summer about the U.S. economy in contrast to the views of many media pundits.
In fact, Delta plans on increasing system capacity 2-3% in the first quarter.
Business travel demand increased 3 percent in the fourth quarter, Hauenstein said, adding that corporate clients tell the airline that they expect growth in 2016 versus last year.
The volume is there from corporate clients, although there are pricing pressures because of lower fuel costs, Hauenstein said.
Asked whether Delta’s rollout of branded fares, including its no-frills Basic Economy fare, would dilute revenue from business travelers, Hauenstein said the branded fares would have an “indirect benefit” in the “several billion dollar range.”
The Impact of Paris Attacks
On other issues, Delta president Ed Bastian said the terrorist attacks in Paris had a $10 million adverse impact on the airline in the fourth quarter.
Delta boasted stronger than expected demand in its domestic business in the fourth quarter while the international market faces headwinds, particularly regarding currency difficulties, Bastian said.
Delta’s business in New York, Seattle and Los Angeles is expanding while Atlanta performed well despite increased capacity from competitors, Bastian said.
Asked about Delta’s capacity focus in 2016, Hauenstein said the airline would continue with its upguaging initiatives, including “seat densification” and retiring 50-seat regional aircraft. Delta plans to increase JFK flights to 250 departures per day, expand in Seattle and make its hubs more efficient, he added.
CEO Richard Anderson twice refused to comment on Frontier’s announcement that it was adding 42 new nonstop routes, citing a policy not to comment on competitive dynamics.
Trainer Refinery Was Very Good Investment
On other issues, Anderson praised Delta’s 2012 of the Trainer refinery for $150 million, noting that the facility produced $350 million in profit in 2015.
However, the refinery only produced $8 million in profit in the fourth quarter despite a projected profit mark of $30 million.