Delta’s Good News


I know, I know. I’ve been picking on the folks at Delta lately for their oh-so-stylish gushing press release.

Yes, well they need to be picked on for that.

But on the financial side, I realized that I had not talked about the airline’s recent earnings numbers here — numbers which we at PBB just analyzed as part of our PlaneBusiness Airline Industry Relative Performance Analysis for the second quarter.

Because Delta reported earnings so late in the quarter, and because they are in bankruptcy, the number that caught most people’s attention when the numbers were finally announced was the huge loss the airline reported for the quarter. The airline posted a loss of $2.2 billion. But net income before special items and reorganization was $175 million. More impressively, operating income was $369 million, up from a loss of $129 million for the same quarter last year. Operating revenue was up 9.6% while operating expenses were down 2.1%.

Nice combination.

Okay, let’s look at the operational numbers — which we took a harder look at in our quarterly analysis.

The airline saw yield up 15%, passenger revenue per ASM was up 17%, and cost per ASM was up 5%. Cost per ASM excluding special items and fuel was up 5.5%.

Bottomlne, Delta has now climbed out of the muck and mire of the basement. In fact, looking at the airline’s revenue performance quarter over quarter, we see an airline that took top honors of the group of airlines we track in our quarterly analysis. Besides Delta, that group includes JetBlue, Southwest, US Airways, Continental, Alaska, United, America West (AWA and LCC are still compared as separate entities), Northwest and American.

The airline that posted the lowest quarter over quarter increase in revenue? American Airlines.

But the news only gets better for Delta, as it not only posted the largest increase in revenues quarter over quarter, it also produced the lowest increase in expenses. (Continental posted the largest increase of the group.)

Not surprisingly Delta also posted, by a very wide margin, the largest increase in profit margin for the entire group.

This is good stuff.

We were also glad to see the airline put their regional flying up for bids this week. It sounds like Delta is going to mix up its current regional mix a bit — and that is also good thing. We had been critical of the airline previously because they had not yet renegotiated these contracts — so we see progress being made here as well.

Although I’m sure if you are an employee of one of the airline’s regional partners, this is necessarily good news.

Unless you work for SkyWest or ASA.

All that flying was reaffirmed shortly after Delta entered the dank and dark halls of bankruptcy court.

One thought on “Delta’s Good News

  1. Economies_Of_Density

    Okay boys and girls….let’s look even harder to see what really went on at Delta. To see it with better focus you’ll need to consider Mainline and Regionals separately. Let’s all open up Delta’s most recent 10-Q.
    This little exercise points out the power of the big jets to generate more output with less head count and less airplanes. In short…we will show what most of you already know but were afraid to say…big jets are simply more productive than RJs. Again, the principle at work here is called Economies of Density and Scope.
    At Mainline DAL, they simply raised fares, generated higher revenues with less assets, while flying fewer ASMs in the process…this generated a 13% increase in Mainline PRASM. This was done with fewer mainline pilots and fewer mainline airplanes. Bravo! BTW…We’ve been doing this at American for the past couple of years…think Rolling Hub (Pilot Idea, not a management idea….circa 1992)
    The REAL story in the article, IMO, is the fact that DAL increased Regional ASMs by over 270% and increased the Regional hull count from 98 to 289 aircraft!!! That’s ALOT of small airplanes, pilots, health insurance, engines, tires, gate personnel, spare parts, etc!! So….what kind of wonderful results did these fearsome Regionals Jets generate in terms of PRASM and Yeild? Well…they flew 2.4 Billion more ASMs and generated ONLY $200 million in additional Revenue. Wha, Wha, Whaaaaaa!!! Let’s have a closer look….
    Here’s some data taken from DAL’s 10Q..(Let’s hope for a good format)
    3 Months Ended
    ASMs(in Billions)
    Year 2006 2005
    Mainline 32.1 34.7
    Regional 3.8 1.4
    3 Months Ended
    Pax Revenue (in Billions)
    Year 2006 2005
    Mainline 3.193 3.045
    Regional 1.035 .830
    3 Months Ended
    PRASM (cents)
    Year 2006 2005 %Increase/Decrease
    Mainline .099 .089 13% Increase
    Regional .27 .59 45% Decrease!!!!
    3 Months Ended
    RPM (Billions)
    Year 2006 2005
    Mainline 30.05 31.67
    Regional 3.00 1.04
    3 Months Ended
    Pax Mile Yeild
    Year 2006 2005 % Increase/Decrease
    Mainline .123 .099 24% Increase
    Regional .34 .79 43% Decrease!!!
    So what did DAL get for buying all those RJs, Hiring all those pilots, increasing regional groound staffing and health benefits, and transferring all those ASMs from Mainline to the Regionals?? They got DECREASING Regional yeilds and PRASM . The more they transfer, the worse the Regional finances look. If they do this long enough…these poor economics of Regional Jets will begin to impact Delta consolidated results in a large way. But for now….we’ll just consider these RJs Placeholders in markets that can’t support big jets.
    So…who’s afraid of the big bad RJs…….Airline economics will keep them a worthless contribution to PRASM and yeild. As Mike Boyd said…..the best use for RJs is as BEER CANS!!!!!!! I think this little lesson is a good demonstration the next logo on an RJ will say BUD!
    At some point, Economies of Densities and Scope will reassert themselves. And big jets on RJ routes will come back… Question…do we want to give away anything from our labor contracts before that day inevitably arrives???
    At some point the stepping over dollars to pick up pennies will no longer make sense.

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