Delta Says Not to Fear International Unit Revenue Declines
A key is that Delta can control its own destiny on the trans-Atlantic, where "93% of capacity is in three joint ventures," CEO Richard Anderson said on the carrier's earnings call. Delta's joint venture includes Air France/KLM and Alitalia. Combined, "we manage over $13 billion of revenue and 30% of industry capacity," said President Ed Bastian.
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On the Delta call, Anderson and Bastian said Delta produced strong trans-Atlantic returns in the second quarter and will do so again in the third. "Advance yields for the third quarter are ahead of where we were this summer," Bastian said. Anderson emphasized that the working relationships are well-defined. AirFrance/KLM employees "run yield management and pricing in Europe (and) we run all the metal out of the U.S.," he said.
"We think of it as running a single airline even though there are different colored airplanes in the joint venture," Anderson said. Delta and its joint venture partners will keep capacity growth between 1% and 3% this winter, he said.
Delta's trans-Atlantic performance also benefited from the carrier's 49% ownership of Virgin Atlantic , which provides access to London Heathrow. "Virgin America has been a big assist with respect to our being able to get a strong foothold in JFK/Heathrow," Bastian said. "We see very strong growth in New York."
Following the explanations, Rodman & Renshaw airline analyst Dan McKenzie told the executives: "You did a nice job of taking trans-Atlantic (worries) off the table here."
The rest of the world was not as kind to Delta as the trans-Atlantic, however.
During the quarter, consolidated passenger revenue per available seat mile rose 5.7%, led by domestic PRASM, which grew 10.2%. Trans-Atlantic PRASM grew 7.2%. But Pacific PRASM fell by 3.2% and Latin America PRASM fell by 0.7%. Overall capacity rose 3%.
In the Pacific, Bastian said, carriers suffered from the devaluation of the yen. Delta is "realigning its network in Tokyo to better match demand," he said. It has reduced intra-Asia traffic as well as traffic to beach destinations.
In Latin America, industrywide PRASM fell 5% in June because of the impact of the World Cup, which resulted in a drop-off in business travel. Additionally, Delta is sharply reducing capacity in troubled Venezuela. In the Pacific, carriers were faced with the impact of the devaluation of the yen.