Why Delta Airlines Doesn’t Have to Be Better

US airlines are the most profitable in the world. And Delta runs the most profitable airline operation in the U.S. Arguably that’s because Delta faces less competition than other airlines do in key markets.

Richard Anderson, who recently retired as Delta’s Chairman and before that its CEO, had previously led Northwest which was acquired by Delta.

There used to be a saying about Northwest’s near-monopoly markets in the Upper Midwest.

    They’re cold, they’re dark, nobody wants to go there but they’re all ours.

Arguably that’s still the case today, not only for the Upper Midwest but for much of the Southeastern U.S. as well.

Delta enjoys a monopoly on about 60 percent of its regional markets, according to Stifel’s analysis, compared with 53 percent at American and 41 percent at United.

…“We suspect that the Atlanta advantage along with Delta having much higher market shares in its other hubs—albeit hubs located in secondary markets—is showing up in the form of better revenue performance from its regional operation,” [Stifel analyst Joseph] DeNardi wrote in his July 9 report.

…At its five most critical hubs—Atlanta, Detroit, Minneapolis, New York, and Salt Lake City—Delta has less exposure to lower-cost rival Southwest Airlines Inc.

…[T]the most germane answer to why Delta appears to enjoy a structural advantage for profitability is simply a function of where the airline flies. Towns with limited air service, such as Valdosta, Ga,, Grand Forks, N.D., and Roswell, N.M., often host only one of the Big Three.


Copyright: idealphotographer

It’s no surprise then that Delta does whatever it has to in order to keep out competition. That’s why they led the charge for government to keep limit flying by Emirates, Etihad, and Qatar.

And by the way Delta miles don’t have to be as valuable as competitor miles precisely because there aren’t as meaningfully competitive mileage programs in their markets. Delta says customers love their miles and redeem more awards than ever. Network television used to say cable wasn’t needed because viewers tuned into their programs in large numbers, too.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Delta Airlines? Which airline is that?

    Gary it’s amazing you can’t even spell the name of a major U.S. carrier properly.

  2. Delta is the best service in the US. Every airline tries to find markets without competition. AA miles are worth far less than DL miles. You really need to stop defending ME3.

  3. Salt Lake City and Minneapolis are growing metro areas. Other carriers should make a play, but they are afriad. Similarly, Southwest had an opportunity to mount a major challenge to Delta in ATL after it bought AirTran. Instead, it basically gave up there.

    Delta also holds its own in NYC/LAX and went after SEA aggressively. Unlike United and American (who seem to flee competition), Delta isn’t afraid to fight it out

  4. It’s astounding to me how many folks choose to defend entities that want closed markets and higher prices from those same folks, based on appeals to patriotism and supposedly preserving jobs.

    Those kind of appeals have regularly proven to be lies, taking the experience of the furniture, automobile and most manufacturing industries into account. In service industries, such entities have leveraged the same government influence to limit competition and labor compensation, and in the airlines’ case offloaded large liabilities onto taxpayers multiple times while degrading the product. Even low cost Asian carriers deliver cheaper prices with a smile, and Euro low cost carriers tend not to have constant staff power trips against passengers.

    I would hope pro-capitalism and patriotic folks would identify with consumer options over such crony oligopolists.

  5. We need REAL competition in the USA. IAD to CLE? $600 one way on a crappy United Express regional jet. JFK to Europe? Routinely sub $500 round trip. Forget about miles, upgrades and everything else. Air Travel simply costs too much in the USA. We need to allow foregn carriers cabotage rights for one additional stop to ferry passengers across the USA.

  6. @Gary —> “You want the space between Air and Lines? Meh.” Well, DELTA wants a space between the words “Air” and “Lines.” Admittedly they are one of the few carriers in the world to spell it that way (Japan Air Lines is another), but this is why I’ve long argued that bloggers need proof-readers….

    /\/\/\/\/\/\/\/\/\/\

    As I am in my 60s, I’m certainly old enough to remember carriers with names like Western (“the only way to fly”), Eastern, Northwest Orient, Pacific Southwest (PSA) AirCal (Air California), AirWest (later Hughes AirWest), Ozark, Pacific Air Lines (there’s another one that spells it as two words), and of course, Pan American (among others) — carriers whose names basically described where they flew. As these carriers disappeared, either through acquisition or simply closing their doors, competition fell by the wayside and we’re let with the three US “legacy carriers,” AA, DL, and UA. Each has benefitted from a certain “regional [semi-] exclusivity” to an extent, but some were better at it than others.

    For example, when American acquired AirCal, they suddenly had a “California Shuttle” service that ran a huge number of flights between the greater LA/OC area (LAX, BUR, SNA, ONT) and the SF Bay (SFO, OAK, SJC) . . . and they couldn’t handle it¹! They f’d it up so badly, they opened the door for Southwest to expand from Texas and “run the table.”

    _______________
    ¹ I used to commute every Wednesday from SNA-SJC round-trip, up in the early afternoon and back in the evening, on AirCal in 737s and/or BAe-146s. When AA took over the route, there were flight delays/cancellations at least 40% of the time. Today, there are no direct flights between SNA and SJC, one has to fly to PHX first . . . for $400+ in each direction on regional jets. On Southwest, however, it’s non-stop and as low as $49 each way . . . on a 737.

  7. I love Delta but to try and limit your competition through government intervention is a farce and just shows hypocrisy. Foreign airlines have better service overall and if these US airlines are the most profitable in the world then stop crying foul and be up for the challenge.

  8. DL have some strong fortress hubs but the simple fact is that DL run a far far better operation than AA or UA. Everything about it is more polished and professional. I despise them due to skymiles but cannot argue with their operational performance. They lead the way amongst the US3. They wrecked skymiles, but happily for them UA and AA are copying their every devaluation so the one area they were weak (FFP) has now equalized with AA and UA.
    AS appear to be the only ones who understand that you could use your FFP as a weapon against DL.

  9. So what’s your point? They’re the top US3 air line in quality in EVERY poll.

    Are you recommend doing they still to the lows of United and American? Stop retrofitting screens on their fleet? Start treating customers with contempt as a rule, not exception?

    This post makes no sense.

  10. The loyalty program may be the least rewarding of the big 3, but based on service, price, ground service, inflight service, lounges and routes, I consistently fly them now (formerly AA) and consistently pay for business/first – and I am happy with the value I am getting compared to my years of AA loyalty. The biggest reason that they “don’t have to do better” in the US is that they are already doing better than United and American. I can get everywhere I need to get to in North America on Delta, Alaska and Air Canada – and I prefer all three over American and United.

  11. @Jason Brandt Lewis

    So, I am guessing your proofreader missed Pan American, which is really Pan American World Airways or Pan American Airways before that. Just leave the blogger alone for a bit.

  12. @Anthony – What’s funny about the SEA hub is that for years the opportunity to establish a well fed Pacific hub was staring AA in the face and they choked. Alaska was a partner and would have provided significant west coast feed (just like they do for Qantas), and American had no Pacific hub. They did nothing for years and then Delta took the opportunity from under their noses, and now has a hub in one of the fastest growing cities in the US (currently 62 tower cranes, more than any other city in the US). Meanwhile AA is trying to make a hub in LA, and competing with every Asian airline – nearly all of which are better than AA in every respect – and Delta and United. For the past 10-15 years American has consistently misunderstood and squandered their competitive advantages. Say what you will about the value of Skymiles, in most cases they suck, but in almost every other aspect of air travel Delta beats American and United.

  13. @Frank —> A proof-reader would have corrected “Pan American Airlines” to “Pan American Airways.” He/she would have left “Pan American” as is . . . PARTICULARLY in the context of the paragraph, which never mentioned the words “Airlines,” “Airways,” etc., save for the case of Pacific — and I could have used Eastern as well — to illustrate that Delta wasn’t the only one to spell “Air Lines” as two words. So, your point was — let me guess — “how much bandwidth can we waste by posting comments not germane to the discussion at hand?” (Which would be Delta, by the way.)

    /\/\/\/\/\/\/\/\/\/\

    @Amy — broad generalization: Yes, Delta “wins” among the US3. But I would submit to you that they in fact lose among US carriers. That is, sure, if you limit the options to AA, DL, or UA, period, DL will come out on top re: customer service. Soon, probably, they’ll regain the top position re: FFP, as AA and UA seem bent on following DL to the bottom. But this ignores WN, B6, and AS/VX — something I am very reluctant to do.

    As has been often pointed out elsewhere, in most cases, these carriers are providing better experiences, better service, and better fares.

    Sure, they may not serve small regional airports like Santa Barbara, CA, St. George, UT, or Valdosta, GA — but the majority of the country’s population doesn’t live there, either. Besides, AA, DL, and UA don’t serve those places either! Carriers such as SkyExpress, Air Wisconsin, Compass Airlines, etc., etc., etc. Now in some cases, such as Endeavor Air, they *may* be a wholly owned subsidiary of one of the legacy carriers, but in most cases, they are independent operators flying under contract. For example, Compass runs flights for both American and Delta; and SkyWest runs under American Eagle, Alaska, Delta Connection, AND United Express (busy little guys!).

  14. By what measure is delta the most profitable US airline? I think Alaska could be more profitable as well as having better operations. These stats of course vary from month to month and quarter to quarter.

    People rave about delta operations but it still hasn’t figured out how to let passengers order meals in advance.

    There is no contest on the value of miles. With American and Alsaka and United I believe, you can use their miles to fly first class on some pretty nice international airlines (no space). With stymiles that is impossible. Delta calls its international business class DeltaOne (no space) in a subtle effort to fool folks into thinking its first class.

    Finally profits are one thing and integrity is something else. Delta is the most dishonest airline in America, and that takes a lot of effort.

  15. @John —> FWIW:
    — Delta reported 2016 net income was $4.37 billion; in 2015, $4.53 billion.
    — American reported 2016 net profit of $2.68 billion; in 2015, $7.61 billion.
    — United reported 2016 net profit of $2.26 billion; in 2015, $7.34 billion.
    — Southwest reported 2016 net profit of $2.19 billion; in 2015, $2.25 billion.
    — Alaska reported 2016 net income of $814 million; in 2015, $848 million.

    (Figures obtained from marketwatch.com)

  16. @Dennis —> According to a report published June 23, 2017 ( see http://www.consultancy.uk/news/13588/the-10-most-profitable-airlines-of-the-globe), “American Airlines have become the world’s most profitable airline according to new figures between 2012 and 2016. Delta Airline, remain the most steadily profitable airline meanwhile, as the top earner between the longer period of 2007 and 2016. Scandal-hit United Airlines maintained third place in both time-frames, while British and Irish carriers also continued to fly high.

    “The global airline industry has long been criticized for its inability to earn sufficient returns. But in 2016, for the second consecutive year, the industry generated approximately $17 billion in economic profit (EP), down from the 2015 record of roughly $25 billion. American and Delta were meanwhile found to be the world’s most profitable airlines, according to an analysis from L.E.K. Consulting.”

    The article goes on to show a graph which, translated into a list, is as follows.

    For the FIVE year period, 2012-2016, the rankings are: 1) AA, 2) DL, 3) UA, 4) WN, 5) IAG [BA & IB], 6) FR, 7) LH, 8) AC, 9) AS, and 10) U2.

    For the TEN year period, 2007-2016: 1) DL, 2) AA, 3) UA, 4) WN, 5) FR, 6) LH, 7) IAG, 8) AC, 9) U2, and 10) AS.

  17. Just another sad day seeing trump deplorables advocating against their own self interest and defending big business for the benefit of the 1 percenters.

    The growing ignorance in this country (particularly in the deep south and the midwest) is not by accident, but by design, and paid off with trump’s election.

    Next step (already underway) is to use these same ignorant, stupid hillbillies to advocate against their own benefits (health care) and to shift the funds in favor of more tax breaks for the 1 percenters.

    Highly unethical, but certainly evil genius.

  18. @Jason Brandt Lewis, total profit is nice but I don’t think that is a real measure of profitability. I’m no finance guy but something like return on capital seems to be a much better measure of a company’s ability to generate revenues in excess of expenses per dollar of invested capital. There are as well no doubt other ways to measure profitability.

  19. I always have to chuckle when people defend Delta as “the best”! They have a saying in Germany: “Among blind people, the One-Eyed is king!”. All the US airlines are varying degrees of horrible! Delta might be the least horrible, but in the latest SkyTrax ranking, Delta comes in as number 32 – behind AirAsia, Norwegian and Aeroflot! I’ll take a European or Asian carrier for international travel any day. The US3 are profitable due to government support and the protection of their huge domestic market. Until more Americans choose to fly foreign carriers when they can or foreign carriers are allowed to fly in the US, nothing will change!

  20. Just take a glance at AA-reduced mileage award chart and you’ll see the clear business model/strategy/defense/competition even amongst American carrier. I see college towns with massive state university’s (50K+) like College Station and Northwest Arkansas. Makes sense – I’d want to protect my once-year fliers during holiday seasons. In college, moving between NYC and Houston, I had to account for 4 airports on the NY (JFK, LGA, EWR, ISP) and (IAH and HOU) just flying once a year because gas wasn’t exactly the cheapest. Now, logistically, you should be considering 5 airports if you’re flying out of NYC and you’re older than 25. out of HPN-all 3 legacy character fly out of there plus JetBlue. But RFK, Whitestone Bridge, and Throgsneck Tolls are actually cheaper than crossing most tunnels or bridges getting to Newark. Factor in Hertz drop fees because the construction its a legit option (and also on AA-reduced mileage award chart). DL does avoid ISP where AA and Southwest flies out. Whether you wanna drive for 1hr or sit in a cab for an hour or have to bus/subway it you gotta factor all that in if you’re a college student. But I’m just a lowly 28 year-old pharmacist that graduated high school with Jimmy Butler. I’ve had to add CLL as a viable option living just outside of NW houston city limits between AA-reduced mileage award chart and the 5750 miles earned on United to offset fuel cost/time, etc. Houston-Hobby is that far away.

    Presumptuously, airlines would factor in time-slots and convenience just like I did on a domestic level. JetBlue only has one flight out of HOU nonstop into JFK, but it’s great if you don’t have to go onto the island and going inbound. Otherwise, it comes in during peak traffic hours. Delta does try to compensate when it flies out of HOU-ATL-JFK/LGA for time-slots.

    I don’t even want to discuss ULCC’s. Because I’ve been prepping for that introduction into Houston. If that’s just happening on the regional/domestic scale, can’t blame all 3 airlines not wanting more competition. I did learn a thing or 2 when I did backpack Europe in college because I did have to fly out of London Luton/Stansted, Munich-west, etc. Things you have to put it up with if you want to backpack Europe back in the day. America is actually back-packable-ish now. Aussies and other older-Europeans actually get excited about it. Not worrying about running from Global ATM alliance to avoid fees and just worrying if you can waive collision in America make it very family friendly for them. Just a couple thoughts I’ve heard whenever they’re willing to talk to an American that’s sincerely tried to be cultured.

    Maybe Damien Rice got it right when he sang “Too many options may kill a man” though in this day in age.

  21. @CJ

    after living in NYC for the past 10 years, and seeing some life, I don’t think it”s right that you have cultural pockets in NY where you can get away with not having to learn English after 40 years or private neighborhoods like Forest Hills where they still refuse to put down fiber optic lines. I go after my mother for not learning English after leaving Viet Nam in ’75. At some point, I feel it’s just culturally disrespectful and ignorant.

    At the end of the day, I feel Aircraft Safety is what should come first, in my opinion. Acknowledge that end may get on with everything else?

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