- 2019 was the best year in Delta’s history, with a record-breaking showing in terms of financial and operational performance.
- Customer and loyalty program growth, coupled with premium revenue growth also represents a positive signal for future performance.
- Delta’s near-perfect year offers several insights that can apply to the entire US airline industry.
- Visit Business Insider’s homepage for more stories.
Last year was a good one for Delta.
The company, which last week released its earnings figures for the fourth quarter of 2019, achieved record financial results, beat expectations, and passed its competitors to become the world’s largest airline.
In many ways, it was a perfect year.
While Delta’s major domestic competitors — American, United, and Southwest — all faced growth and capacity challenges due to the grounding of their Boeing 737 Max fleets, Delta, which has not purchased any of the planes, was able to achieve 7.5% revenue growth, partly thanks to improved efficiency; revenue per available seat mile (RASM), a key airline metric, was up 2.4%.
That’s also good news for employees — Delta is planning to pay out a record $1.6 billion in profit-sharing funds to its 90,000 workers.
“2019 was the best year in our history,” CEO Ed Bastian said. “These results simply would not be possible without the incredible work of our Delta team.”
Delta’s success was all the more notable because it avoided headwinds that sent competitors scrambling, such as the 737 Max fiasco, contentious labor issues, and uncontrollable factors like bad weather in hub cities — it also reveals trends and bets that can apply to the overall US airline industry.
Demand for travel is strong
Much of 2019 was spent by economists, analysts, and business leaders worrying about inverted yield curves and an imminent recession.
But that recession never came, and as the US economy remained strong, demand for travel continued to surge.
The airline saw the total number of passengers grow 6% from 2018 to 2019, reaching 204 million. It gambled on that continuing demand, investing in new hubs and focus cities, upgraded terminal buildings and airport infrastructure, and more.
Demand was strong both domestically and internationally. In the fourth quarter, domestic revenue rose 7.7%, while international revenue was up 2%. Passenger revenue per available seat mile (PRASM) grew 6.3% in the Latin market, a good sign as Delta prepares to launch its new code-sharing agreement with LATAM, in which it purchased a minority stake in 2019.
Demand for premium comfort is also strong — and people will pay for it
Premium cabin seats, products, and upsells have been a major source of revenue for Delta, as corporate customers and leisure passengers continue to be willing to pay more for a better on-board experience.
The airline earned $15 billion in revenue from premium products, up 9% over the previous year. Business class seats that allow passengers to sleep in a flat bed during a long flight, domestic first class seats, upgrades, and extra legroom coach seats all contributed.
Corporate travelers, who are a major source of premium revenue, were up 6%.
Just as importantly, premium revenue appeared to beget more premium revenue. According to Delta president Glen Hauenstein, 70% of customers that try a premium product will purchase an equal or better product in the future.
Opportunities for premium revenue were higher in 2019, and are likely to be even higher in 2020 as Delta continues with a rollout of new wide-body aircraft and refurbished cabins for older ones, bringing modernized business class suites and seats, as well as an all-new premium economy cabin.
Airlines typically earn high margins on premium seats, so robust demand is a good sign for the entire industry.
Consistency and performance is crucial to travelers
Delta’s operational performance also contributed directly to the airline’s success, demonstrating that passengers value reliability and are willing to pay for it.
Delta was named the overall best US airline by The Wall Street Journal this week based on a variety of objective performance metrics, including on-time arrivals, cancelled flights, delays, lost luggage, and involuntary bumps.
The airline ranked third in extreme delays, and sixth in numbers of delays exceeding two hours on the tarmac, but was first in on-time arrivals, cancelled flights, and involuntary bumpings. The airline was also named the most on-time North American airline by FlightGlobal. The airline saw 165 cancel-free days across its entire branded network — which includes flights operated by contracted regional airlines — with 281 cancel-free days across its mainline operations.
“Exceptional operational performance, along with unmatched customer service is why more people than ever are choosing to fly Delta,” CEO Ed Bastian said.
Loyalty programs continue to drive engagement and revenue
Customers are more engaged than ever with frequent flyer and customer loyalty programs, as shown by the rise of an entire media industry built around rewards. And that engagement can benefit airlines.
Delta earned $4.1 billion in revenue from its partnership with American Express, according to Hauenstein, which purchases miles from Delta to disburse as spending rewards on co-branded credit cards.
Delta also saw 6 million enrollments in its SkyMiles frequent flyer program, and 1.1 million new co-branded credit cards issued to users.
Although some super-users complain that Delta’s program is less lucrative for users than other airlines’ offerings, the airline offered new ways to use miles about a year ago, including more opportunities to pay for seat upgrades with miles. About 1.2 million passengers have used that new functionality, contributing $135 million in incremental revenue to the airline.
New planes are important, but they aren’t everything
New planes are important as airlines seek to offer the newest and best cabin products. They also offer better efficiency than older models, helping cut down on fuel costs.
Although Delta is adding a variety of new top-of-the-line Airbus models to its fleet, including the regional A220 and the wide-body A330neo and A350, the airline still operates older Boeing 757 and 767 aircraft on its trans-continental and trans-Atlantic routes.
That isn’t necessarily a bad thing.
The airline is in the process of retrofitting the interiors of the 767 fleet, and, unlike United, is not yet planning to retire the 757. While it continues to take delivery of newer wide-body jets and deploy them strategically, while replacing elderly MD-88 and MD-90 planes with A220s and other planes, an integrated maintenance operation and relatively low fuel costs allow it to continue relying on its older, but still entirely capable, fleet.
The older average fleet age than competitors has also helped Delta avoid the 737 Max conundrum that has consumed its competitors. Although that suggests a less efficient fleet, Bastian said that the airline had voluntarily capped carbon emissions at 2012 levels, and that each new plane added to the fleet offered an average of a 25% efficiency improvement.
The airline is scheduled to take delivery of 80 new planes in 2020.
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