Despite a choppy recovery, Delta Air Lines is keeping its eyes on the prize of international routes. The airline reaffirmed its interest in growing in this market, even if the recovery is proceeding with some continued uncertainty. Already, this summer, Delta is taking a major step toward introducing more premium products on its transatlantic routes with the rollout of its Premium Select class on all transatlantic operations. However, executives spoke on Delta’s fourth-quarter earnings call and reaffirmed that the airline sees no shortage of opportunities in this sphere as it looks at the strength of its partnerships.
Delta’s ongoing strategy
Delta Air Lines has spent the last decade or so working heavily on its domestic market. With a narrowbody fleet renewal since the time of the merger with Northwest complete and an increase in domestic gauge and capability as it grew its Airbus A321, A220, and Boeing 737-900ER fleet. This helped grow Delta’s hub connectivity and introduce more premium products into the marketplace. The next step will come with the introduction of the A321neo this spring in Boston.
However, throughout this, Delta has also worked to strengthen its international presence. The focus has primarily been on the carrier’s expansion of partnerships into joint ventures or equity investments to form deep ties between the Atlanta-based airline and foreign carriers. This includes airlines ranging from Korean Air to Virgin Atlantic to, more recently, LATAM as it looks to strengthen its international partnerships and build more opportunities for growth.
When the crisis hit, Delta saw international travel impacted first. Flights between the US and China were the first casualty. Italy, the rest of Europe, and then international routes across the Americas followed in almost rapid succession. Not long after, Delta’s international partners started to weigh their options and some, notably Aeromexico and LATAM, pursued bankruptcy.
Delta keeps its eye on international
In December, Delta Air Lines made further investments of $1 billion in a few of its closest partners. On the airline’s fourth-quarter earnings call, CEO Ed Bastian was asked about Delta’s international opportunities. He stated the following first on Delta’s interest:
“Long term, our opportunity is international. And when you think about growth, when you think about expansion, when you think about the natural opportunities that Delta has for the future, it’s going to sit in the international arena and working very closely with that. International is expensive. International is hard. “
International routes involve a significant investment. Traditionally, international routes run on widebody aircraft, and widebodies pose a different kind of risk. The cost of operation and acquisition is typically higher, and international markets take more time to develop and mature to profitable operations. This is the hard part of making an international route work on Delta’s own. Delta starts from scratch in a marketplace where it does not necessarily have an existing customer base, leaving it more reliant on its US-originating customer base to make routes work.
This is where joint ventures can help. Coordinating beyond a traditional codeshare partnership, Delta gains access to its partner customer base and can use that as a baseline to help launch international routes as the opportunities arise.
However, those partnerships do have limits. As Mr. Bastian explained:
“We have found, over time, that it’s very, very difficult through solely joint ventures or contractual means to try to enhance the customer experience and provide the very best quality of service if you’re just trying to do it through a contract as compared to being in the room – a seat in inside the company, if you will – influencing the decision to ensure that we’re putting our customer interest at the center…the growth is going to be based on customer preference.”
In short, Delta’s premium-oriented strategy is not necessarily the same strategy other airlines are willing to engage in, especially given that Delta’s strategy takes time to grow and develop and usually involves a significant financial investment.
Delta’s equity investments are designed to grow Delta’s international opportunities. Delta is not going to serve every destination on the planet, nor will it always have the schedule that works for every passenger. As a result, some customers will be flying via a connection with a partner, and Delta wants to ensure that the customer experience is as seamless and comparable as possible. Thus, with its equity investments, it gives Delta an opportunity to be “in the room” of decisions made at various partners.
Delta keeps its eye on international
In the marketplace today, Delta has largely enacted its premium-oriented strategy in the United States and is making progress internationally. It will continue to roll out new and improved products at home and abroad, as evidenced by its Premium Select rollout on more international routes. However, this strategy has been nearly ten years in the making and still is not yet complete.
Internationally, Delta has room to grow. The Premium Select rollout represents an ongoing opportunity for the airline in this sphere. However, there is an important distinction to make. First, Delta’s joint venture and equity investment strategy do not necessarily translate to fewer nonstop flights from Delta internationally. Next summer, Delta is launching new nonstops between New York and Stockholm and Boston to Tel Aviv and Athens on top of adding frequencies on key routes. Pre-crisis, notable long-haul additions included Mumbai from New York and Shanghai from Atlanta. As Delta weights its future fleet opportunities centered around deliveries of new Airbus A330neos and A350s and the flexibility of its Boeing 767-300ER fleet, it would not be surprising to see Delta continue to grow its international footprint.
There are a lot of opportunities in markets where Delta has international partners, like Europe and East Asia, but there may also be an opportunity in other markets like the South Pacific. Ultimately, however, Delta is playing the long game with its international opportunities. Whether it pays off the way Delta’s domestic market moves has, remains to be seen, though Delta continues to remain bullish on its return on investments across the world.