Domestically Delta works to earn a revenue premium by leveraging its two advantages: non-union mechanics and front line employees. Delta’s TechOps drive an on-time operation less likely to cancel flights, and acts as a profit center doing maintenance for other carriers. Delta customer service is generally friendlier than competitors. However the U.S. market is mature and domestic aviation is not a growth business.
Delta owns stakes in Aeromexico, China Eastern, Gol, Air France KLM and Virgin Atlantic. These investments both help Delta align the interests of those carriers with their own, and diversify their exposure beyond the U.S. market.
Now they’ve announced they have taken a 4.3% equity stake in transpacific joint venture partner Korean Air.
Delta has dismantled its Tokyo Narita hub and now funnels transpacific traffic through Seoul having initially twisted Korean’s arm into a deal. With an award of new slots at Tokyo Haneda Delta may exit the Narita market entirely.
The three U.S. airlines aren’t really airlines, they make money as central banks printing currency, a high margin business which fuels the marketing primarily of banks issuing credit cards.
Delta though has a separate business. Just as JetBlue invests in tech startups, Delta invests in other airlines. At one point warrants in Priceline owned by the major airlines were worth more than the rest of each airline (and indeed, Priceline worth more than the airlines). Diversifying out of low growth businesses seems wise. I’m not sure I’d merely be diversifying out of the U.S. market given all that American Express cash.
Delta’s investment in foreign airlines seems to be intended to achieve market power over supply of international airline seats and hence price. That is great for shareholders and bad for consumers. Delta’s goal, they ought to just admit it, is to get more and more money out of consumer pockets and give as little in return as possible, i.e. maximize profits. It is a little insulting for Delta, or any other airline, to claim it is concerned about anything other than getting that next dollar out of your wallet.
Non-union mechanics means that it can be easier for Delta to deal with that workforce. It is an advantage that can be neutralized through sensible labor relations policies. Southwest has done so for decades.
Delta gonna delta, its either gonna pay off, or abandoning Tokyo will backfire. They are in the precarious position of not having Japanese partner airline though.
There is no Japanese airline available for Delta to partner with so it is going to hurt. Well run machine but there are flaws and that is one of them. I predict eventually they will not use their own metal on transpacific routes. Also not serving Hong Kong will hurt.
Delta has also a much better product, from IFE on all planes to orchids and water at business class check-in counters, and timely. Their revenue premium predates the union mechanics and indifferent front line employees issues you speak of, a non-too-subtle AA-centric view of the world.
Wow. Orchids and water at Biz Check-in.
Oscar, call the BOD’s and see if we can initiate this type of experience..
@scotch. If you add orchids we will add orchids
Delta may be doing this as a favor to the Hanjin Group (Cho family chaebol and allies) to fend off an activist takeover by the Korea Corporate Governance Improvement (KCGI) fund. Delta has mentioned they want to expand the 4.3% stake to 10%. I wonder if they’ll get a board member or some sort of liaison in management. Whatever they get, I’m sure they’ll now get more influence over Hanjin/KAL than what they paid for.