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Investing in Delta Air Lines: A must-know company overview

Part 6
Investing in Delta Air Lines: A must-know company overview (Part 6 of 14)

Delta’s investments in airports, joint ventures, and alliances

Investing in New York airports

Delta’s profitability in New York is expected to increase in 2014 as the company expands operations its in two major airports, LaGuardia and JFK. It had acquired 132 slot pairs from U.S. Airways in LaGuardia, the closest airport to Manhattan, and holds a 35% seat share at the airport. Delta added 123 new aircrafts, increasing its capacity by 50% since March 2012, and it currently operates 277 daily flights to 65 cities. Delta plans to invest around $200 million to renovate and expand its operations in LaGuadia and $180 million on expansions in JFK.

Scheduled air services _ Seattle-TacomaEnlarge Graph

Improving coverage in Asia through Seattle

Delta has Atlanta and New York hubs as its East Coast gateways to Asia and has increased using the fast-growing Seattle airport as its West Coast gateway. Seattle is preferable to other West Coast gateways (Los Angeles or San Francisco) due to its proximity to Asia, Europe, the Middle East, and India. Delta Airlines began new flights to Tokyo’s Haneda Airport and Shangai’s Pu Dong in 2013. Delta has flights between Seattle and Tokyo Narita, Tokyo Haneda, Osaka, Beijing, Shanghai, Paris, and Amsterdam. Two new series, from Seattle to Seoul and Hong Kong, are planned for 2014.

The table above compares the top ten operators’ increases in seat capacity from Seattle to Tacoma International Airport. Delta Airlines (DAL) has the third-highest growth rate in capacity (at 12.7%) after Jet Blue Airways’ (JBLU) 18.3% and SkyWest Airlines’ (SKYW) 13.4%. Southwest (LUV) is the fourth largest by capacity with 9% of the total capacity.

Expansion into Latin America

Delta has invested in the equity stakes of Aeromexico and Brazil’s second-largest carrier, GOL, in order to cash in the expected high growth in two major countries, Brazil and Mexico, in the Latin American Region. It’s a strategic move to cope with competing airlines in the region, as Delta holds only a 10% share in the Upper South American region, while the share of its merged competitors, American Airlines (AAL) holds 37% and United (UAL) holds 11%, can go up to 48%. In Central America, Delta holds an 11% seat share compared to its competitors’ 41% (American holds 21% and United holds 20%).

American will, however, still dominate the market as it gains access to Brazil and Latin America through the LATAM airlines group (Latin America’s largest carrier formed after the merger of LAN and TAM Airlines ), which is also part of the global alliance One World partners.

Expansion into the European market

Delta has entered a joint venture with Virgin Atlantic Limited (acquiring a 49% stake) in order to expand operations between the United Kingdom and New York. With this joint venture, Delta has improved its capacity to a 35% seat share to gain from the growing corporate market and to compete with joint venture partners American and British Airways, with a 52% seat share in that market.

DAL-Air France-KLM-AlitaliaEnlarge Graph

Delta provides the world’s largest transatlantic route through the four-way joint venture between Delta Airlines, Air France, KLM, and Alitalia, offering flights between North America and Europe, between Amsterdam and India, and between North America and Tahiti. Delta has benefited from Alitalia’s network in Italy and Air France and KLM’s hubs in Paris (Charles de Gaulle) and Amsterdam (Schiphol). According to the BTN survey, Delta’s joint venture tops Atlantic competitors on overall flexibility, service, and performance.

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