Delta Air Lines is adding 100 A320neo aircraft to its fleet starting in 2020. The major deal – 100 firm + 100 options – will complete the MD88 fleet replacement and grow the carrier’s operation starting in 2020. Delta is heavily focused on upgauging to improve revenue and decrease (or hold down) unit costs and the A321neo order will deliver on that.
Keeping the Delta PaxEx Flying
The new planes will seat 197 passengers (20 F, 30 C+, 147 Y), adding one row over the A321ceo layout. That should be enabled by the Cabin-Flex layout that removes the second exit door forward of the wing in favor of additional over-wing exit windows.
The inflight product will match the existing Delta mainline fleet, which is mostly good news for travelers. Embedded IFE, faster inflight connectivity and larger overhead bins from the Airspace by Airbus platform on the A321 will be part of the offering.
On-demand inflight entertainment, fast satellite-based [Gogo] 2Ku in-flight Wi-Fi, power ports as well as streaming video content will be available at every seat through Delta Studio. The cabin will also feature expansive, 25-percent-larger bookshelf-style overhead bins and full spectrum LED cabin lighting.
Bigger Planes for Bigger Profits
The new planes and upgauge process are significant to the carrier’s financial success and CEO Ed Bastian believes the A321neo order helps to continue that growth. He notes that others may try to grow in New York or Los Angeles or Seattle the way Delta plans to but that “the real estate is all taken.”
$DAL's Bastian on could others match the growth: We're in the mid innings of upgauging. Other airlines can try to grow in LA or Seattle, but the real estate is all taken. "We're now in harvest time."
— Seth Miller (@WandrMe) December 14, 2017
Operations in Atlanta carried 12% more passengers in the past 3 years without changing the number of flights. That growth brings better yield to the operation as the lower costs per seat mile are significant with the larger planes. That’s fleet up-gauging in action.
A Financial Engine
Even with the financial upside coming from the larger aircraft there is an arguably larger play involved in the order. Delta chose the Pratt & Whitney Pure Power PW1100G GTF engine for the fleet. As part of that deal Delta Tech Ops will also become a major maintenance, repair and overhaul provider for the PW1100G and PW1500G (CSeries) engines in the Americas. The value of that contract in revenue to Delta is massive. Bastian briefly spoke to that during the carrier’s Investor Day briefing this morning:
“We don’t have explicit exclusivity in the Americas” but based on the volumes and commitments “we will essentially be the main engine [repair] supplier across the Americas for that product.” You can do the math…call it $3mm [per engine] – that’s an order of magnitude number – and that’s $15bn.
The $15 billion revenue won’t all come quickly. Indeed, plenty of jokes being made about the troubles P&W had launching the product so far.
— Robert W. Mann, Jr. (@RWMann) December 14, 2017
But the overall value proposition is significant to Delta. Indeed, some are suggesting that the profits from the Pratt & Whitney MRO contract could essentially pay out the capital costs of acquiring the aircraft.
The first half of the next decade will see Delta bring a significant number of new planes into operation. Many will be assembled in the United States at Airbus’s Mobile facility and both companies highlighted the US jobs created or sustained through the order, a not-so-subtle dig at Boeing and its ongoing CSeries trade complaint. And the Boeing/CSeries situation likely contributed to Delta’s move towards Airbus for this order. But the P&W MRO deal is far more significant than the CSeries challenge.