Let me start, as I always do when I cover this yearly mega investors event, that I do not trade Delta DAL stock (or any airline stock) and I do not care if the share price goes up or down. My only perspective is the impact on me (and you) as a Delta frequent flyer and the choices Delta makes that impact us.
With that out of the way let’s take a look at what interested me during the well over 4 hour conference call that ended 2 days of “fun” for press from the financial world visiting Delta’s home base of ATL Atlanta ending at the Delta Flight Museum attached to the headquarters.
There was a ton of talk about new airports from New York to Salt Lake and the many Sky Club improvements completed and on the way. I look forward to all these improvements and many have been needed for a very, very long time. Much time was also focused on things Chris and I have been talking about on the blog for a while now, that is, how Delta is using “big data” as much as possible to get all they can from us. To make us feel special (think recognition by everyone at Delta – “thank you for being (whatever medallion) and a million miler”). Also to market us in ways they think we will bite to extract as much cash from us as possible.
Now on to a few of the quotes that piqued my interest and my take on what was said. The quotes are from SeekingAlpha.com if you want to read the entire transcript of the conference call.
- From Eric Phillips – Vice President Revenue Management
“Looking forward as the fleet, we take more of the larger narrow-bodies. You will see more kind of premium seats, especially the Comfort+, First Class. That’s part of the benefit of up-gauging. But the other thing is we were just still learning the demand profiles for these products via Comfort+ or Premium Select or First Class.
So going back and even revisiting some of the configurations maybe that we have on some of the other aircraft is always an option for us, too.” – BOLD MINE
Interesting. I have been warning readers for YEARS about the shrinking “free” 1st class upgrade space due to Delta doing all they can to sell, often really, really cheap (like only $2.00 for first class), upgrades to folks so that loyal medallions don’t get them. But just maybe Delta can give a little back as they could add a few more 1st class seats down the road to jets. Yes, in an effort to sell more of them, but the net result could be a few more seats for upgrades as well. We shall see. Now on to an answer to the analyst Joe DeNardi who always wants to know just how profitable SkyMiles are to Delta via Amex.
- Ed Bastian – Chief Executive Officer
“There’s a lot of consideration to American Express not disclosing anything that could be seen as a competitive disadvantage to us or them, and we got to protect. But I think we can do a better job that all said in terms of giving you a sense for this is our business, this is what we generate roughly in terms of the contribution from the business.” – BOLD MINE
Delta does not want to tell us “just” how profitable SkyMiles really are. Why? Let’s say we learn that Delta sells Amex SkyMiles for 2 cents but we learn the cost to Delta really is only ½ a cent. That kind of information (and just a guess from my part) could stick in a consumer’s mind that the real value of a SkyMile is only half a penny. It will be interesting if Delta ever opens up and is really ever transparent of the true value of SkyMiles (i.e. not just how many more billions in revenue they get each year from Amex).
Now on to a topic that matters to me. When I fly a long way I want to be on a jet with Delta One. To me narrow bodies are never fun for much more than 3ish hours. I have flown lots of long AeroMexico 737 flights that have much more leg room than Delta and that makes them barely tolerable in business class. Notice what Delta’s president said:
- Glen Hauenstein – President
“321XLR, we don’t know whether or not – we fly the 757 today in the transatlantic, and we really don’t know with the labor rates where they are today, whether or not narrow-bodies in the transatlantic makes sense. We’re studying that. And the XLR is really just a 321neo with a tank on it. And so we can always move some of our orders to that. But really, we see the application more for working on our cost structure in Europe, serving the big cities and lowering our carbon profile at the same time, bringing more efficiency to our transatlantic fleet. And we’re not convinced going with a long and narrow plane is where that is – the evolution is going.” – BOLD MINE
Delta did fly a 757 from NYC to Azores for a while. They marketed / sold what was a domestic 1st class seat on those routes as Delta Premium Select (premium economy) which is logical since they put premium economy seats in the new A220s and call that 1st class. Again, when it comes to long flights I want a wide body experience. I hope Delta keeps the narrow body jets stateside. Speaking of jets, one more bit from Glen:
“Today, with a number of sub-fleets, fleets and sub-fleets we have when a senior captain returns, it causes 17 ripple events inside the training ladder at flight operations. For those of you who don’t know, pilot salaries are our second largest expense next to fuel. And so when we have a lot of pilots in the training house, which we have a lot of pilots in the training house all the time, every time we can take an event out of that cascade, we can save a significant amount of money. And so as we get rid of the MD-88s this year, that will take one of the ladders out of the training cycle. When we get rid of the MD-90s next year, that will take two of the ladders out of the training cycle. And the real goal here is to go from 17 training cycles down to nine or less in the near term over the next several years. And each one of those ladders represents tens of millions of dollars of costs coming out of the company.” – BOLD MINE
Again, I don’t really care about the pilot training bits but I do care about fleets i.e. what type of jets Delta flies. Delta, over the next many years, will be focused on less sub-fleets. What does that mean to you and me? It should, over all, make for a more consistent and reliable experience and to know what we will get. Also, when it comes to equipment swaps, more of a consistent experience. A win for Delta and us.
Next on to some bits about Sky Clubs since we know Delta is really working to expand them and improve them. Notice what Tim Mapes had to say:
- Tim Mapes – Chief Marketing and Communications Officer
“If you’re not a Sky Club member, we want you to be one, if you don’t have the credit card. Every one of those is a high margin, high-value transaction that is in an existing infrastructure with a brand that people trust, the same way Amazon was able to move from books. And I’m not saying, Jamie, talking at the break, we’re not going into the hotel business. The first aspects of this are how do we make the things that you’re doing in some of these premium products more telegraphic, more clear in the value proposition of whether it’s more recline or more legroom or the ability to be in a lounge in an airport, whatever those things that you find value in, how do we get that in view. That’s the first phase.” – BOLD MINE
From a business standpoint, Delta has hit a home run here. The Sky Clubs are, most times, really crowded. Delta has been a victim, if you will, of their own success in earning cash from these “high margin, high-value transactions” and we see the results. But they want us to be members. Why? I see ZERO benefit of being a member since I can only use the club when I fly Delta. I am happy they are pleased that I can get in with cards like my The Platinum Card from American Express or The Amex Business Platinum Card. Oh, and I do really like all the improvements Delta has made to the clubs like faster wifi, decent food choices and at least semi-tolerable wines and other beverages. One more quote from Tim:
“In September of next year, we will be introducing a new line of blankets that not only feel amazing and that research indicates are preferred by the existing blankets, but made out of 23 plastic bottles the likes of which you would never know is actually anything other than cloth and material.” – BOLD MINE
Humm….. Tumi plastic blankets? We shall see if we know or not that they are as good as the current ones that I really do like that is both the Delta One blankets as well as the domestic first class ones.
One last highlight before we are done, from a VP from Rev Mgt.
- Delta’s Senior Vice President, Pricing and Revenue Management, Eric Phillips.
“We’ve had more card acquisitions in 2019 than we’ve ever had before. Importantly, it’s the relaunch of the Amex travel card. And so that’s relaunching in just a few months but it offers very exciting opportunities for Delta, which is going to help push the Amex contribution to Delta up over $4 billion for 2020.” – BOLD MINE
Delta is pushing to keep expanding the money they make from Amex. Good for them. But not good for us. The never ending expansion of SkyMiles “printed” can only mean one thing – higher SkyMiles prices for award tickets and an even larger (if possible) push to sell upgrades for SkyMiles. We should all be very afraid and get all the value out of our hard earned points and sooner than later if possible!
Did you listen to or read the DAL conference call? What do you think of the highlights above? Were there other bits that you found even more interesting? Let us know in the comments below! – René
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