Skift Take

For airlines unaffected by the Boeing 737 Max 9 grounding, there's money to be made.

Some Seattle fliers are switching their trips to Delta Air Lines as hometown carrier Alaska Airlines’ schedule takes a hit from the latest Boeing 737 Max grounding.

Delta President Glen Hauenstein said Friday that the carrier has seen a “small uptick” in bookings in Seattle since the Federal Aviation Administration grounded all 737 Max 9 planes with door plugs last Saturday. Alaska operates 65 737-9s with door plugs and the grounding is forcing it to cancel between 110-150 flights per day.

United operates 79 of the 737-9s with door plugs. However, United’s cancellations are a smaller percentage of its schedule – it has a 945 plane-strong mainline fleet compared to 230 for Alaska.

“It’s kind of minimal in the grander scheme of things, but it’s relevant in Seattle,” Hauenstein told analysts on Delta’s fourth-quarter earnings call. Both Alaska and Delta have hubs in Seattle.

Delta reported an adjusted operating profit of $6.3 billion for 2023. That translates to an operating margin of 11.6%. Its adjusted net profit was $4 billion.

The boost Delta sees in Seattle comes amid still strong overall travel demand in the U.S. Executives described the market as “exciting,” and said they expect unit revenues — how much an airline earns per seat mile flown — to turn positive by the end of the first quarter.

The domestic U.S. has faced too much airline capacity since last summer, which has pushed airfares — and unit revenues — down in many markets. Some airlines, including discounters Frontier and Spirit, as well as JetBlue even forecast 2023 losses. That’s why Delta, and others, are focused on slowing growth to boost revenues in the market.

And the fact that Delta executives made no mention of weak or slowing travel demand indicates that the number of travelers is at least holding steady.

One very positive development: Travel volumes from large corporate customers, think Fortune 500 companies, has recovered to roughly 90% of pre-pandemic levels, Hauenstein said. That gives Delta hope that it could see a full recovery in corporate travel volumes this year.

Delta’s Long-Haul Fleet Plan

Delta unveiled a long-anticipated order for up to 40 Airbus A350-1000s on Friday. The deal includes 20 firm aircraft with deliveries from 2026, plus 20 options it could exercise later.

More A350s for Delta was not a surprise. The airline made the decision in 2020 to streamline its widebody fleet around Airbus planes — the A330neo and A350 — when it retired its Boeing 777 fleet. And Boeing’s decision to kill its new mid-market airplane program in early 2022 meant the Virginia-based airframer was almost certainly out of the running to provide a Boeing 767 replacement to Delta.

Now we have clarity on Delta’s widebody fleet plan. A350-1000s will sit at the top with seating for nearly 400 passengers, followed by A350-900s, and A330-900s, -300s, and -200s. We will see a cascade of new A350-1000s replacing smaller -900s on certain routes, which in turn will replace A330s that will eventually allow the retirement of its aging 767s.

Delta plans to pull 767-300ERs from long-haul routes by 2028, and retire the planes by 2030, Hauenstein said. The larger — and newer — 767-400ERs will continue to fly into the 2030s.

One big question is whether the supply chain issues that continue to dog the industry will force adjustments in Delta’s fleet plan. Asked Friday whether he expected the situation to improve this year, CEO Ed Bastian said: “I hope there’s no more surprises, but I’d be lying to you if I thought that’s the case.”

Delta Hopes for Another Record Transatlantic Summer

“We had a fantastic year in the transatlantic,” Hauenstein said of 2023. “We’re hoping to beat that, but there’s a really high bar as we move through the year.”

Bookings to Europe through April are “pretty exciting” with unit revenues up “high single digits,” he said. That is particularly encouraging given the first few months of the year is the slowest period for U.S.-Europe travel.

But, as Hauenstein noted, Delta faces a high bar to beat last year’s transatlantic performance this summer. Airlines, after seeing the record numbers last year, have piled on with new flights this summer. The additions come from major carriers like American Airlines and the Lufthansa Group, as well as discounters Norse Atlantic Airways and Play Airlines.

Airline capacity between the Europe and U.S. is scheduled to increase nearly 9% in for the three months beginning in June, according to Cirium Diio schedules.

Delta is less bullish on its Latin America and Pacific franchises this year. While Hauenstein expects revenue growth in both regions, the airline’s own expansion — and recovery — mean unit revenues are forecast to stay depressed well into 2024.

And the Numbers

Delta posted a $1.3 billion adjusted operating profit and a 9.7% operating margin in the fourth quarter. Revenues increased 12% to $12.2 billion compared to a year earlier. Total unit revenues decreased 3% while unit costs excluding fuel increased 1%.

For the full year, revenues at Delta increased 15% to $58 billion. Total unit revenues decreased 2% on a 2% increase in unit costs excluding fuel.

Delta forecasts 3-6% more revenue on roughly 6% more capacity in the first quarter. It expects a roughly 5% operating margin in the period. And, for the full year, it plans to increase capacity by 3-5%.

Airlines Sector Stock Index Performance Year-to-Date

What am I looking at? The performance of airline sector stocks within the ST200. The index includes companies publicly traded across global markets including network carriers, low-cost carriers, and other related companies.

The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more airlines sector financial performance

Read the full methodology behind the Skift Travel 200.

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Tags: airlines, alaska airlines, boeing 737 max, delta air lines, earnings

Photo credit: Delta plans at Seattle-Tacoma International Airport. Jill /Blue Moonbeam Studio / Flickr

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