Delta disses discount airlines, pursues premium passengers

Low cost carriers are rebounding fast in the US market. Though smaller, carriers like Allegiant, Frontier, and Spirit Airlines are not just returning to pre-pandemic levels, but quickly exceeding them. Allegiant’s recent order for 50 737 MAX planes is the latest example. Faced with this seemingly disruptive competitive force, however,

Delta Air Lines appears unfazed. In its recent earnings call the carrier dismissed the challenges brought on by significant capacity increases from the U/LCC segment, choosing to focus instead on the demand from premium customers for its more comfortable products.

We’re really not afraid to compete in those markets. And we think our products stand on their own; it is a very different product and a very different customer than [U/LCCs] are going after.

– Glen Hauenstein, Delta Air Lines President

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Competition from LCCs is hardly new, of course. Delta president Glen Hauenstein suggested during the call that “[S]ome of our highest-return markets historically have been straight up against LCCs and ULCCs, so I think we’re really not afraid to compete in those markets.”

Premium seat revenue recovery leads main cabin, to the tune of 84% recovered versus 2019 levels. That’s 9% better than the main cabin revenue comps, even as business travel lags the leisure travel recovery.

To Delta this suggests a premium leisure renaissance of sorts, one it hopes will extend even as business travel returns. Hauenstein further sees that as “something that we want to continue to exploit as we think about how we service our customers moving forward and how we lay out the planes and what products and services we offer.”

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Shifting the cabin layout

While the LCCs generally focus on the highest possible seating density to drive down unit costs, Delta is talking about reducing cabin density as a competitive strategy. And, in some ways that really is what the carrier is doing. But also, not entirely.

Hauenstein describes the focus this year of rolling out the Delta Premium Select premium economy product for all Transatlantic routes. “That is really designed specifically for higher-end leisure, as well as corporate travelers whose travel policies don’t include the flat-bed Delta One product. So early returns on that are phenomenal, far above our expectations.”

That rollout, however, does not represent a like-for-like comparison to the U/LCCs. A better example might be the A321neo slated to join Delta’s fleet beginning later this Spring (the first was spotted out of paint in Hamburg last week).

Delta’s A321neo will sport 194 seats on board, up from 191 on the A321ceo configuration. Despite the additional seats on board, the new planes will deliver a less dense seating layout.

The first class cabin will remain at 20 seats, though featuring a new design first tipped two years ago. Delta’s Comfort+ extra leg room offering will grow to 42 seats on the neo, up from 29 on the ceo. The 132 main cabin seats drops 10 from the 142 on the legacy configuration.

Being able to add seats while also increasing the number with extra legroom is a bit of a trick, mostly enabled by the removal of the entry doors just in front of the wings. This “Airbus Cabin Flex” design change allows more efficient use of the space on board and airlines are taking advantage.

Delta is not alone in pursuing an increased share of premium seats on board. United Airlines expects to dramatically increase the number of premium seats per departure as its 270 aircraft order announced last year starts to flow into the system. United’s EVP/CCO Andrew Nocella suggests that United will see an even higher share of premium seats than Delta, with 16-20 first class and 50-60 economy plus seats on board.

Not entirely different

Left unsaid through this hyping of the premium products is that Delta (and the other legacy carriers) are also very happy to compete at the low end of the market. The proliferation of basic economy offerings, including in long-haul markets, allows the legacy airlines to drive additional revenue via a multi-pronged approach.

Ideally for the airline passengers won’t buy the Basic Economy product at all. That initial up-sell in the booking flow can drive significant incremental revenue. But if a consumer insists on taking the absolutely cheapest fare the opportunity to upsell everything from a seat assignment to bags remains. Just like on the LCCs that Delta says it doesn’t worry about.

The part where the airline can advertise the lower fare up front and still manage to charge more, without running amiss of DOT rules is a nice bonus.

And it isn’t like the U/LCCs don’t offer similar upsell options. Whether it is Allegiant Extra, Spirit’s Big Front Seat, or Frontier’s Stretch seating, options exist.

For a price. Just like with the legacy airlines.