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Delta Air Lines executives downplayed the importance of basic economy fares on the airline’s quarterly earnings call Wednesday and said the jury is still out on how competitors’ bargain fares will affect its business.
Delta was the first major U.S. carrier to offer fares aimed at undercutting its low-cost competitors. Rivals American and United have also recently introduced the no-perks fare class.
“I think it’s early for us to be able to communicate what their implementation is going to do to us,” said Glen Hauenstein, president of Delta Air Lines.
He said consumers are paying attention to what they’d lose with basic economy and not automatically choosing the lowest price.
“When people are presented with the option of basic economy, they’re [then] selecting something else,” Hauenstein said. “That’s the real value: to define a product and match it to what they want. If we’re not able to do that, then we’re only playing to the lowest common denominator and you end up being commoditized.”
Delta still sees strong demand for flights to and from London, and remains bullish despite the popular sentiment that weakness in the UK economy will lead to struggles on transatlantic routes. While airlines such as Virgin Atlantic have reported softness in transatlantic demand, Delta said it is seeing continued strength from these routes. Delta owns a 49 percent stake in Virgin Atlantic.
“The declines and the reason for the decline in forecasted profit for Virgin Atlantic are more related to currency,” said Hauenstein. “The British economy so far has held up better than anticipated post-Brexit. We respond to the demand and I think we have a lot of levers until we see that materialize… It would be premature to announce what we might do if demand declined; it’s never been a better time to go to the UK or Europe for U.S. travelers.”
Delta is already anticipating a $125 million hit to its pre-tax income for the second quarter based on the 4,000 flights disrupted by rough weather last week during spring break, but reported a strong first quarter overall.
Business travel, as well, is tracking slightly higher in the second quarter of 2017 than in any previous quarter.
“Corporate customers who are planning to spend more are at a record high,” said Hauenstein. “The couple of standouts that are very positive are energy and banking and finance. There’s probably good reasons for both of those to be optimistic for the rest of the year.”
Delta’s leadership was skeptical when asked whether the scandal over a passenger’s forced removal that embroiled United Airlines this week could lead to new federal regulations. Delta only denied boarding to 1,200 flyers in 2016, ten times less than some other carriers, according to its figures.
“Overbooking is a valid business process,” said Delta CEO Ed Bastian. “There’s operational consideration behind it. It’s not an option of whether you overbook, it’s how you manage your overbooking… I don’t think it’s a significant challenge for us. It’s very much [about] giving our front lines the tools to empower them at the first line of contact.”
When pressed again later in the call regarding the prospect of federal regulations limiting overbooking, Bastian refused to comment.