Delta says passengers are spending big on its premium products
Delta Air Lines took its numerous premium product investments in 2019 to the bank today, unveiling revenue numbers that only re-confirm its already leading position among U.S. carriers.
Below the Atlanta-based carrier's headline $4.8 billion net profit, growth in both premium- and loyalty-related revenues "outpaced expectations" with 9% year-over-year growth last year, Delta president Glen Hauenstein said during an earnings call Tuesday. The airline raked in nearly $15 billion in premium and $2.9 billion in loyalty revenue — nearly half of its overall operating results.
“We continue to improve and invest in the premium experience and are seeing increasing product affinity," said Hauenstein, who added that 70% of passengers who pay for a premium experience on Delta do so again.
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Many of the investments Delta made in 2019 came as it expanded the availability of premium products across its fleet. The airline introduced the Airbus A330-900 equipped with Delta One suites and Premium Select premium economy seats in July, replacing Boeing 767s that lacked either product. Other upgrades include the airline's first retrofitted Boeing 767-400ER, and first Airbus A220.
That passengers are responding to Delta's upgrades with their pocketbooks is not a surprise. After the airline rolled out an improved international economy inflight service in November, executives said they found a direct correlation between the improvements and higher fares in test markets.
Getting more people to pay for premium products has a downside. Delta is making a trade off between providing elite frequent travelers with complimentary upgrades, something it offers on most domestic flights, versus raising revenues by getting more people to pay for those same perks.
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“The promise of upgrades are a prized benefit of frequent-flyer programs," Henry Harteveldt, founder of travel consultancy Atmosphere Research, told TPG citing research his firm has done. "I don’t fault airlines for charging for first class… but what frequent fliers have said is if you’re not going to offer free upgrades, don’t promise it."
American Airlines, Delta, and United Airlines all offer complimentary upgrades to elite frequent travelers on most domestic flights. However, changes in fare structures and increased "upselling" — when a traveler pays to move to a premium seat after booking a ticket — has made complimentary upgrades harder to snag.
Hauenstein does not appear concerned with putting off elite frequent flyers. When asked about travelers on the other end of the spectrum — those buying Delta's no-frills basic economy fares — he called them "entry-level customers" that, once they fly Delta, come back and often buy more expensive fares.
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"Once they see the quality of service that Delta people provide, I think they stay with us throughout their entire life cycle," said Hauenstein.
Delta executives see strong demand trends continuing through 2020. When asked if they have any concerns, including any slowdown in corporate spending or the U.S. presidential election, CEO Ed Bastian said Tuesday that demand is "healthy" across the board.
"For all the fractiousness of the political environment, [Delta's earnings] show Americans are still buying airplane tickets and drinking kombucha," said Bankrate's senior economic analyst Mark Hamrick. Bankrate is owned by Red Ventures, the parent company of TPG.