United has slowly been rebuilding international routes since the covid-19 pandemic began, but this news marks an important development. By joining Emirates - one of the main players in ME3 - United will gain access to connections in places like South Asia that were not previously accessible to them.
Frequent flyers have some new advantages as well, although not everything may appear positive at first.
1. Delta’s Long-Term Strategy
Delta Airlines' strategy is built upon a set of competitive advantages supported by their reputation as a consumer brand. Leveraging this brand equity, Delta offers customers an enhanced travel experience and builds customer loyalty. At its recent investor day event, the airline highlighted three themes which are driving long-term success:
Branded Fares
Delta has long been at the forefront of ancillary revenue generation. These unbundled fares allow it to sell additional services directly to passengers while simultaneously increasing its overall ancillary revenue generation and capacity management capabilities. As market leader for this type of ancillary revenue generation, Delta plans on further increasing branded fare revenue over time.
Delta's premium leisure travel is helping propel its long-term expansion. President Glen Hauenstein highlighted two trends encouraging this type of travel at investor day: one being "revenge travel," where business travelers seek to make up for missed trips during pandemic conditions; and two, an increasing number of nomadic workers using company policies that enable them to work from anywhere - both trends are beneficial to Delta as they should lead to repeat customers and higher revenue per mile.
Delta is well positioned to take advantage of these and other trends. However, due to the seasonal nature of air travel demand, it will need to balance domestic and international business. That is why the company focuses more heavily on international travel as an avenue for revenue at risk management (RASM).
Delta's investment in Virgin Atlantic is yielding results: its JV partnership has ensured Delta access to Heathrow, while providing it with credibility in the vital New York-London market. Furthermore, it has taught Delta much about designing airport lounges from Virgin's success.
Delta Air Lines' primary challenge remains the revival of trans-Atlantic demand, which may lag initial expectations by 2022 due to geopolitical tensions. Furthermore, currency headwinds and industry capacity growth from LCCs and super-connectors present additional hurdles; nevertheless, Delta remains focused on its long-term strategic priorities and plans to restore earnings power beyond pre-pandemic levels by 2024.
2. Delta’s Short-Term Strategy
Delta's short-term focus is unit revenue (PRASM). CEO Ed Bastian refers to it as Delta's "number one financial priority." It's easy to see why: in January Delta pilots approved a four-year agreement including a 30% pay increase and lower fuel prices have reduced recoupable revenues and yields, while capacity growth by LCCs on transatlantic routes makes the situation all the more challenging for Delta.
Delta plans to invest in its core network and seek partnerships that will expand it beyond home markets in order to reduce capital costs while diversifying revenue streams and mitigating risk. This approach could save considerable costs.
Delta has also made great strides toward expanding their premium leisure offerings. According to Goswami, premium leisure travel presents a substantial opportunity for the industry, so Delta has set its sights on positioning itself as a premium airline - adding new seats on some long-haul aircraft and upgrading their Airbus A350s as part of this premium positioning; further leveraging relationships with hotel partners for new high-end rooms.
Delta remains confident that its long-term strategy will succeed, thanks to investments made into its fleet and alliances, helping it navigate a difficult environment. SkyTeam member with large traditional fleet, Delta also works on various innovative projects which could drive future profits.
The company is also taking steps towards more sustainable operations and environmental initiatives, setting an ambitious 2050 vision of net zero emissions travel that includes expanding sustainable aviation fuel markets, innovating for future fleet designs, eliminating single-use plastics from its supply chains, and encouraging net-zero supply chains.
Delta recognizes this will require cooperation among employees, partners, industry stakeholders and regulators - but is making strides toward its goals, with initiatives like the Delta Sustainable Skies Lab convening experts from diverse sectors of industry in an attempt to collaborate and innovate together.
3. Delta’s Equity Partnerships
Delta has amassed one of the most extensive portfolios of airline equity partnerships among global carriers, having invested in Air France/KLM (OTCPK:AFLYY), Aeromexico, Korean Airlines and China Eastern as equity investments. These relationships allow deep partnerships ties and access to foreign markets that may not otherwise be accessible on a codeshare basis; each equity relationship is governed by agreements which cover revenue sharing, route planning cooperation as well as revenue splitting between partners; however this differs from Delta's traditional alliance partnerships which typically share assets or crews among partners as partners governed by alliance agreements that govern these equity relationships governed by agreements covering revenue sharing as opposed to sharing of assets or crews as is done between alliance partners as is usually practiced among Delta alliance partners.
Delta has successfully reinstated longhaul international flights despite ongoing government travel restrictions and high disease case counts; however, their equity partners' operations have shrunk and many of them now operate under bankruptcy court-supervised restructuring processes resulting in huge investment losses which exceed $2 billion and will only increase as these companies return to normal operations.
These partners' primary concern is matching demand in limited markets with reduced capacity, before reestablishing sustainable pricing structures that remain profitable. Instead of simply cutting prices - which would cause market share loss - these airlines are moving to establish themselves through new routes and increased frequencies; Delta may see some capacity transitioned over to equity partners at this point, leading to reduced own international capacity on its books.
Delta's partners will also gain from increased traffic and yields as a result of Delta reestablishing flights, with increased traffic and yields as a result of its return. American currently holds an exclusive rights on service to Latin America from Miami while LATAM can increase their share. Furthermore, Houston International Airport's expansion will give Delta more flights with greater connecting opportunities into Mexico City.
Delta holds an advantage over its alliance partners due to the access provided by its equity partners to foreign markets. This access has become particularly significant as United and American continue to battle Gulf carriers such as Emirates, Etihad Airways, and Qatar Airways, who they believe are dumping excess capacity into U.S. market with financial backing from their governments.
4. Delta’s Joint Ventures
Delta Air Lines and LATAM Airlines Group received approval from the Department of Transportation (DOT) to form one of the world's largest airline partnerships between North and South America, the world's largest. Antitrust immunity will allow these airlines to connect travelers between US/Canada and Brazil, Chile, Colombia, Paraguay Peru Uruguay. Furthermore, codeshares between partners will increase while reciprocal loyalty benefits and enhanced customer service benefits will further be realized within this new alliance.
The Department of Transport order requires Delta and LATAM to create their JV within six months, making their SkyTeam network available to US/Canada travelers as well as Latin Americans traveling throughout South America and beyond. As part of their agreement, both airlines are also required to divest eight slot pairs at New York LaGuardia Airport as a condition for approval; this condition ensures competition remains on U.S.-Canada routes while working together within their JV.
At the beginning of 2018, Delta acquired a 20% stake in LATAM Airlines Group and filed an application with the Department of Transportation to create a metal-neutral, antitrust-immunized joint venture between their carriers to improve connectivity between North and South America and increase capacity; tentative approval was given from the DOT for such an agreement in June.
If the joint venture is approved, you can expect increased opportunities for codeshares between Delta and LATAM flights, enhanced loyalty benefits, and new connections at hubs such as Atlanta Hartsfield Jackson International, New York JFK Airport, Sao Paulo Guarulhos Stadium, Santiago de Chile. Furthermore, Delta and LATAM will share flights between North America and South America including LaGuardia airport via codeshare flights.
Delta and LATAM are members of SkyTeam alliance, joining Air France-KLM and Virgin Atlantic in offering rewards in SkyMiles when flying partner routes; you may earn SkyMiles at different rates depending on route or class of travel - for instance economy tickets on Air France flights may earn 500 miles per segment while business class will offer higher bonuses.
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