Tag: Delta Airlines

Business

Defining challenges for airlines and stock buybacks

by MQDuongLeave a Comment on Defining challenges for airlines and stock buybacks

The next few weeks or likely months will be rough for airlines. Major airlines in the US have announced major cuts to their flights, domestically and internationally.

Major airlines in the US already asked for assistance and bailouts from the government. When you are in a bind and employ thousands of folks, it’s understandable to request for help for the greater good, right? Or is it?

Bloomberg reported that in the last decade, biggest US airlines spend almost 90% of its free cash flow on stocks repurchases. In other words, instead of saving cash for a rainy day like what we are going through now or investing in back to the business more than what they already had or paying employees more, airlines repurchased their stocks to please shareholders and increase stock prices (likely).

Source: Bloomberg

Am I opposed completely stock buybacks? Absolutely not! Stock buybacks is definitely a legitimate use case of free cash flow at the disposal of executive teams whose fiduciary duty is to shareholders. If the folks who monitor the business on a daily basis decide that stock repurchase is the best course of action, who are we to argue?

However, the current pandemic and the criss that is engulfing airlines put things in perspective. The public has all the right in the world to question why airlines deserve a bailout after years of spending a boatload of money on stock repurchases. On an individual level, we are all advised to save up money for emergencies. Why should airlines receive a bailout? Especially when a recession was always a likely scenario after a decade of bull market.

Airlines have a lot to answer for after this crisis blows over. There should be some measures put in place to prevent this phenomenon from happening again. Nonetheless, I, by no means, advocate for a complete ban of stock buybacks. Truth be told, it’s a fairly complicated matter. But it’s how the government officials earn their paychecks. Mark Cuban already offers some sound advice

Business

Baggage fees by airlines for domestic flights in the US

by MQDuong1 Comment on Baggage fees by airlines for domestic flights in the US

I came across this piece of news from Skift

JetBlue Airways is raising fees for checking bags again by $5 — to $35 for the first one and $40 for the second — on flights within the United States.

Baggage fees in the US have become a significant source of revenue for airlines in the US. In 2018, baggage fees brought more than $4.5 billion in revenue for major airlines in the US, compared to $1.1 billion in 2008. Throughout the first three quarters of 2019, the figures are well on their way to surpass the 2018 ones. Though I understand the monetary perspective through which many look at this issue, I find it annoying that airlines seemingly take advantage of customers this way. We often travel with luggage and for some certain routes, there are very few options as only one or two carriers operate on the routes. Customers have little freedom to choose.

I compiled the baggage policy of major US airlines below, as well as some information on their baggage revenue and how much of the total revenue it makes up.

Source: Bureau of Transportation and official airlines’ websites

“Low price” airlines such as Frontier and Spirit have a significant portion of their revenue from baggage fees. The low prices are often misleading as we rarely travel without a carry on. Only an addition of carry-on fees will reveal the whole cost of a flight ticket with the low price airlines. Among the bigger carriers, as far as I know, only United Airlines (not shocked at all) charges customers for carry-on in certain cases.

Business

Delta’s worldwide partnerships

by MQDuong1 Comment on Delta’s worldwide partnerships

A few days ago, I wrote a short piece on how Delta strives to deliver an exceptional customer experience. This follow-up entry focuses on the airline’s worldwide partnerships to stay competitive internationally.

One airline alone can’t possibly handle all the routes by themselves, especially international routes and when they don’t want to blow up their financials with unsustainable expenses. Strategic partnerships allow carriers to make possible routes that are far away and not on the carriers’ map. Through joint ventures and investments, Delta has established a great network of partners that enable the carrier to service international routes. Some of the notable partnerships or investments include the stakes in Virgin Airlines, KLM, GOL and AeroMexico in Latin America, China Eastern Airlines and Korean Air in Asia.

Source: Forbes

The partnership with Korean Air is highly important to Delta Airlines’ desire to expand in Asia. Delta’s revenue between 2012 and 2017 fell significantly. The carrier’s main hub has been Narita, Japan for the past 30 years, but the Japanese government decided to upgrade Haneda, an airport closer to Tokyo, to an international hub. The move drew passengers away from Narita, especially those who ended their trips in Japan; which made Narita less financially sound. Delta’s rivals, American and United, had partners to help them service routes to both Haneda and Narita. Delta didn’t have that option. 

As a consequence, Delta started to address the weakness amidst the rise in demand for flights between the US and Asia. In addition to getting approval to fly non-stop to American cities from Haneda, Delta added more flights between China or Korea and America. The carrier first signed a joint venture deal with Korean Air and then bought a 4.3% stake in the parent company of its Asian partner. The collaboration with Korean Air gives Delta access to Incheon, one of the new major airport hubs in the world and Asia, as well as access to more Asian cities. Furthermore, Delta stopped its own services to Hong Kong and Singapore while adding routes to destinations such as Manila. To service Delta passengers to Singapore, it relied on Korean Air. 

Elsewhere, Delta announced in October 2019 its acquisition of 20% stake in LATAM. The investment hands the carrier access to the lucrative flights between the US and South America while stripping its rival American of a strategic partner in the region. 

In 2018, international passenger revenue made up 29% of the airline’s total passenger revenue. 

Disclosure: I own Delta’s stocks in my personal portfolio

Business

The stark difference in how airlines display their purchase policies

by MQDuongLeave a Comment on The stark difference in how airlines display their purchase policies

During a purchase process of a flight ticket, interested buyers like you and myself care a lot about the policies such as those on baggage, change, rewards redemption, cancellation or refund. The longer and more expensive a flight is, the more we want to know about the policies of such a flight. Let’s look at how some of the popular airlines display their policies

Cathay Pacific – Great

It’s easy to see the important policies on Cathay’s flights.

Emirates – Great

You can see the difference in policies across tiers. It gives the audience a chance to compare the options and select what works best for them.

Eva Airways – Good

Eva Airways opts for a text-based presentation of policies instead of bullet points and icons like Emirates and Cathay. Even though the information can be read easily enough, there is room for improvement

Delta – Acceptable

Delta spells out whether a flight can be changed or refunded, but the UI is not as user-friendly as other airlines that we have seen above

Singapore Airlines – Great

Similar to Emirates or Cathay, Singapore Airlines makes it easy for travellers to see what they are paying for

Korean Air – Good

Even though the comparison is easy to spot, the information leaves something to be desired.

American Airlines – Below average

The airline displays some basic information, but you’ll have to click on the baggage and optional fees on the bottom left corner to have more details. Even then, it’s not really easy to digest their complex policies

United Airlines – The absolute worst

Look at these chunks of text. The airline doesn’t seem to want their customers to know what they are paying for. The use of text instead of visuals is bad enough. They manage to make it worse by using capitalized fonts which are not user-friendly AT ALL.

Customers do buy services or products deemed good value for their money. Subtly and implicitly scamming customers doesn’t generate much trust or goodwill. In a cut-throat industry, trust and goodwill can be the difference between prosperity and struggles.

Business

Delta Airlines’ efforts to deliver a great customer experience

by MQDuong2 Comments on Delta Airlines’ efforts to deliver a great customer experience

As I am fascinated by successful turnaround stories in business, below is my research on how Delta delivered a great flying experience to customers as part of their effort to turn the company around.

Tim Mapes, the current Chief Marketing and Communications of Delta, said the following in 2017: “[The Northwest merger] was our opportunity to emerge from the pack of U.S. airlines, the legacy carriers, and differentiate Delta, not as a commodity, where a seat is a seat, but as a different experience, with levels of service that are different from our competitors,” 

Since emerging from its bankruptcy, Delta has been relentlessly focused on delivering superior customer experience, willing to sacrifice short-term profits in exchange for better customer experience.

In 2018, Delta announced renovation for its 777 fleet, reducing the number of abreast seats from the industry standard of 10 to 9 in order to give its customer seat more room. For premium section, the carrier added “sliding-door accesses to a private cove filled with entertainment options, a personal table, and a 24-inch-wide reclining seat”. The reduction of seats meant a short term drop in revenue. The investment in premium section came with an increase in expenses. It showed how far Delta was willing to go to deliver a great customer experience.

In terms of in-flight entertainment, in 2016, Delta became the first US airline to offer all in-flight entertainment for free. Since then, it has added wireless back-seat screens and free messaging in flight for passengers, the latter of which allowed passengers to stay connected with others on the ground.

Additionally, Delta looked for other ways to make the whole flying experience from start to finish as pleasant as possible. In 2016, Delta spend $50 million in a technology called Radio Frequency Identification (RFID) for baggage tracking. RFID not only allows accurate handling to be more efficient, but also lets passengers know where their luggage is at any time via Delta mobile application. In 2018, the carrier started to let fliers file a baggage claim via its mobile application at the final destination instead of having to physically visit a Delta office. Confident in its ability to handle baggage, Delta is now committed to a 20-minute policy for luggage on domestic flights. Under the policy, if luggage doesn’t arrive on a carousel within 20 minutes of arrival of a domestic flight, passengers will be entitled to 2,500 bonus miles.

Late 2018, Delta rolled out the first biometric terminal for direct international flights from Terminal F at its Atlanta hub. The new technology allows passengers to check in without presenting papers. If you are annoyed by having to take out electronic devices for carry-on and personal items, you won’t have to with the new technology from Delta, making the boarding experience smoother and more pleasant. 

Clear and effective communication is key to customer satisfaction. Delta was the first US airline that offered customer support on Twitter. Since then, the airline has used social media extensively to offer customer support to passengers. In 2019, when a flight was delayed due to uncontrollable weather, Delta sent personalized emails to explain the situation and apologize to customers, along with 10,000 bonus points in their account. 

Source: Spark Central

All the investments in and focus on improving customer satisfaction seem to pay off majorly for Delta. In 2019, it won the TripAdvisor Travelers’ Choice Awards for the Major Airline in North America category. Revenue from Premium products made up 31% of Delta’s total revenue in 2018, up from 18% in 2011. According to Delta;s CEO, passengers purchased 65-70% of premium seats on international and domestic routes, compared to only 13% of domestic premium seats sold in 2011. Loyalty Program’s revenue share rose to 9% of the carrier’s total revenue, up from 5% in 2011. Customer loyalty is also shown through the use of Delta branded credit card. In 2018, the carrier received $3.4 billion in revenue from American Express for the purchase of miles and merchant credit card fees. The margin from American Express payment was estimated to be higher than that of Delta’s core operations and grow at an 11% annual clip.

Disclosure: I own Delta stocks in my personal portfolio