Delta Air Lines stands as the nation’s most financially successful airline, with CEO Ed Bastian at the helm, focusing on maintaining its leading position.
Last year, Delta outshone its competitors in unit revenue, measuring the income earned per seat per mile flown. The company’s stock surged by nearly 23% in 2024, outperforming others in the tumultuous airline industry and exceeding the gains of the S&P 500. Delta anticipates a significant increase in its free cash flow, projecting a boost of up to 50% this year, reaching between $3 billion and $4 billion.
The airline is also aiming to achieve an investment-grade credit rating once more. A noteworthy fact for passengers: Delta was the most punctual airline last year, with over 83% of its flights arriving on time, as reported by the Transportation Department.
United Airlines, placing second after Delta in net profit margins, is rapidly advancing, with plans to increase its profits further this year. “The knowledge that someone is aspiring to take our leading position pushes us to remain vigilant and continuously strive for excellence,” Bastian shared with CNBC.
Delta prides itself on being the premium airline of America, attracting many affluent travellers, many of whom are American Express cardholders. This partnership with American Express proved highly lucrative, generating almost $7 billion for Delta last year. The airline continues to see faster sales growth in its more spacious and upscale seating compared to standard economy fares.
In the competition for luxury flyers, both Delta and United are enhancing their offerings with more premium seats to appeal to passengers willing to pay extra for added comfort, be it a $300 surcharge for additional legroom on a cross-country journey or a significantly higher price for a business class seat.
Bastian, who embarked on his first flight at the age of 25 from New York to Chicago for a business trip, is committed to ensuring Delta’s reputation for quality.
Next Shot
On Wednesday, Delta is set to unveil its most exclusive airport lounge at John F. Kennedy International Airport in New York. This lounge, designed for Delta One cabin passengers, will be Delta’s most enormous, spanning over 39,000 square feet and featuring luxurious amenities, including spa treatments and a full restaurant. The lounge’s design includes details like Missoni’s iconic zigzag pattern, aiming to underline the airline’s commitment to premium travel experiences.
Delta draws inspiration from competitors like United and American, which have previously dedicated their most opulent lounges to long-haul business class customers. Delta plans to open additional Delta One lounges in Boston and Los Angeles later this year and is evaluating other potential airport locations. “In this industry, no original idea remains unreplicated,” notes airline analyst Savanthi Syth from Raymond James.
United, meanwhile, is investing in its fleet with substantial orders for new Boeing and Airbus aircraft and upgrading hundreds of narrow-body cabins with modern amenities such as seatback screens and Bluetooth technology. This strategy is intended to cater to both international business class travellers and those purchasing the most economical basic economy fares. “While we have not yet achieved the top spot in industry profitability, we are confident in our trajectory,” stated United’s chief commercial officer, Andrew Nocella, emphasizing the importance of investing in customer experience.
As Delta, United, and America approach their centennials, they are focused on leading the evolving travel market while maintaining profitability. United is expanding its global reach, adding new destinations like Dubrovnik, Croatia, and Amman, Jordan, to its network. The airline’s introduction of service to Cape Town, South Africa, before the pandemic proved to be a strategic move that Delta, headquartered in Atlanta, later emulated.
This period presents challenges for many U.S. airlines as post-pandemic labour and operational costs rise, cutting profit margins despite record traveller numbers. Increased market capacity has led to fare discounts during slower travel periods, making it costly and intricate for airlines to adapt their strategies. Even Southwest Airlines faces calls from investors to innovate its simple business model, including introducing premium seating or assigned seating options.
Amid shifting economic currents, the behaviour of U.S. consumers has become increasingly discerning. While some corporate chiefs are bemoaning a cutback in spending, Delta’s CEO offers a contrarian view, highlighting a persistent investment in experiential consumption and enhanced comfort, per Ed Bastian’s observation.
“While big-ticket purchases like new electric vehicles or homes might be on pause, consumers are keen on enriching their lives with meaningful experiences,” he noted, pointing to the surge in demand for premium events and hospitality services.
‘Brick by brick’
Dating back nearly two decades ago, when economic turmoil loomed, Delta’s foresight into travellers’ willingness to pay more for superior flight experiences proved accurate. Emerging from Chapter 11 bankruptcy in 2007, a predicament not uncommon among U.S. airlines post-9/11, Delta embarked on a fundamental overhaul under the leadership of then-CEO Richard Anderson.
Focusing on operational basics such as reducing baggage loss, minimizing cancellations, and ensuring on-time arrivals, alongside enhancing cabin cleanliness, laid the foundation for rebuilding the airline inch by inch. Anderson, who later passed the leadership baton to Bastian in 2016, emphasized the importance of operational consistency over ancillary partnerships. Mitigating maintenance issues and proactively managing plane logistics further solidified Delta’s operational reliability.
To rejuvenate its brand, Delta engaged a marketing firm associated with Barack Obama’s presidential campaign 2008, aiming for a coherent brand image amid competitive pressures from budget airlines and internal challenges. Recognizing the value of consistency in fostering a premium brand image, Delta meticulously refined its service and aesthetic standards. This strategic repositioning, advantageous corporate travel contracts and the strategic merger with Northwest Airlines in 2008 catapulted Delta ahead of its competitors, benefiting from a more integrated global presence and operational synergy while others struggled with post-merger integration.
Bastian acknowledged the significant positive impact of the airline’s reliability on customers and staff, underscoring the convenience of not apologising for service lapses. A noteworthy aspect of Delta’s work culture includes its status as one of the least unionized major U.S. carriers, with an ongoing commitment to enhancing employee compensation.
Time to remodel
With foundational improvements solidified, Bastian, having been with Delta since 1998, shifted focus towards more visionary endeavours, including enhancing the premium travel experience and expanding market presence in lucrative regions like New York and Los Angeles.
Strategic global alliances and investments, such as the 49% stake in Virgin Atlantic, have broadened Delta’s reach, infusing premium heritage into its service DNA.
Efforts to elevate the passenger experience across all cabin classes have included revamping terminals, expanding luxury lounge networks through partnerships like the one with American Express, and enriching onboard amenities, epitomized by the introduction of complimentary Wi-Fi for SkyMiles members in early 2023, showcasing Delta’s commitment to enhancing value for all travellers.
Delta Air Lines has poured over $12 billion into modernizing its U.S. bases, enhancing them with high ceilings, cutting-edge technology, and a unique fragrance in some select lounges. Claude Roussel, in charge of Delta’s lounges, kept the scent’s composition a guarded secret upon inquiry.
The airline’s recent ventures include its terminal and the new Sky Club at LaGuardia Airport in New York, joining the ranks of other airlines with new terminals.
A decade ago, Vice President Joe Biden highlighted LaGuardia’s then-dire state by suggesting that a blindfolded visitor might mistake it for a “third-world country.”
Delta has navigated significant challenges, including a prolonged system outage in 2016 and, more critically, the COVID-19 pandemic. Delta secured billions in federal aid to survive the pandemic downturn like its industry peers.
The company strategically encouraged about 17,000 employees to accept severance packages, hiring newer, less experienced, and lower-paid staff. Early in the transition, Ed Bastian pointed out the cost-saving advantage of this younger workforce. By the end of the previous year, Delta’s U.S. workforce numbered around 100,000.
As the pandemic receded, Delta and other carriers discontinued service to numerous smaller cities, exacerbating the isolation of these areas amid a regional jet pilot shortage.
Nevertheless, international travel has demonstrated robustness, with consumers willing to invest in lavish experiences.
Luxury air travel? In the U.S.?
The concept of luxury air travel within the U.S. has been evolving. However, it must match the extravagance of Etihad Airways or Singapore Airlines, known for their onboard showers and spacious suites. The U.S. air travel scene has recently seen substantial upgrades, raising expectations for convenience to match those found in e-commerce or app-based services.
Henry Harteveldt, a former airline executive and the mind behind Atmosphere Research Group remarked that Delta has managed to stand out for its relative luxury, mainly because of the lower bar set by its competitors.
A surge in demand for air travel has been fueled by several factors, including the rewards credit card boom, strong consumer spending, the allure of social media, and a pre-existing desire to explore. Notably, Delta reports that its revenue from premium offerings is outpacing its standard economy cabin, a trend it expects to continue.
Airlines have been adapting to cater to affluent travellers by revamping their frequent flyer programs to reward spending over mileage and make elite status more elusive.
Luxury amenities at Delta and similar carriers are often found in their exclusive lounges. Delta’s Sky Clubs have introduced innovations such as dedicated security lanes for premium passengers at select locations, with plans to extend these features to its upcoming JFK lounge.
United and American Airlines have also stepped up their lounge game, responding to the high expectations of travellers, often met through credit card benefits.
Delta softened its lounge access restrictions following customer backlash over long wait times, striving to preserve the exclusivity and comfort of its lounge experiences.
’We’re constantly pushing each other”
With optimistic financial projections, Delta and United stand apart in the industry, with United’s CEO acknowledging Delta’s success and striving to replicate it in product quality and service.
United’s strategic decisions, like retaining wide-body aircraft during the pandemic downturn, have positioned it favourably as international travel rebounds.
Delta CEO Ed Bastian is focused on broadening the airline’s influence, seeking new partnerships with companies like Lyft and Starbucks to enhance its loyalty program.
Bastian admits to the impossibility of conducting anonymous competitor analysis due to his recognizability but maintains that his team frequents rival airlines to scout for potential enhancements.
Despite competitive respect, Bastian complements United’s app for effective communication during travel disruptions, yet he confidently favours Delta’s app for customer service and management.