Delta Air Lines says upselling has prepared it for an economic slowdown
Delta’s coach section on their new Airbus A350.
Leslie Josephs | CNBC
Delta Air Lines‘ chief financial officer told investors Thursday that the carrier is ready for an economic downturn — it’s just not seeing one yet.
An economic downturn “might be two years down the road, it might be five years down the road, but at the end of the day, we’ve been studying for this final exam for a long time, and we feel the company is very well positioned, whatever the economic cycles might be, to continue to thrive,” Paul Jacobson told an investor conference.
The International Monetary Fund warned last month of a “synchronized slowdown” in global growth amid trade conflicts, while strong consumer spending has buoyed the U.S. economy.
Delta was hit by the Great Recession shortly after it had emerged from bankruptcy and then acquired Northwest Airlines, setting off a musical chairs of mergers among U.S. airlines that has left four carriers in control of about three-quarters of the U.S. market.
The Atlanta-based airline, the country’s most profitable and largest by market capitalization, has been growing alternative revenue streams, such as its growing partnership with American Express and its new engine repair facility at its headquarters.
The airline this week livened up its international economy class, with more snacks and a free Bellini cocktail, to try to one-up competitors. The airline has been successful at getting passengers to pay higher fares, particularly toward the front of the plane.
Revenue from coach class made up a little less than half of Delta’s $44.4 billion in revenue last year, down from nearly two-thirds of the airline’s revenue in 2011. Meanwhile, revenue from premium seats, such as those in business class, brought in close to a third of Delta’s revenue last year, up from 18% in 2011. Delta executives have noted that it used to sell only around 10% of its first-class seats and now sells about 60%.
Delta, like other airlines, is giving travelers more opportunities to upgrade to more expensive seats, even after purchasing tickets.
“Airlines now are better equipped from a technology and marketing standpoint to sell their premium cabins,” said Henry Harteveldt, founder of Atmosphere Research Group, a travel consulting firm.
That will help the airline in the case of a downturn, Jacobson said.
“The first thing any CFO does in the face of economic headwinds is say, ‘Get to the back of the airplane,'” he said.
In the wake of the financial crisis, the gap between deeply discounted, just-fill-the-plane coach fares and four-figure business-class fares was wide, and travelers had fewer options to upgrade.
In an economic downturn, “as a business traveler, comply with all your corporate travel policies, but you have a separate, unique transaction where individually, you can make a choice to buy up to first-class or a premium experience.”
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