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Delta’s new branded fare categories expected to boost revenue

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Branded fares to increase revenue benefits

Delta Air Lines changed its product offerings and classes of service to more clearly define and segment its customers, offering five revamped branded classes. Delta’s new branded airfare initiative provides an opportunity to derive an annual benefit of $1.5 billion by 2018.

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New fare classes

Beginning on March 1, 2015, Delta’s new airfare classes will go into effect:

  1. Basic Economy: This fare class started in 2012 and targets price-conscious consumers. Basic Economy doesn’t offer an option or flexibility to select, change, or upgrade seats.
  2. Main Cabin: Formerly Delta’s Regular Economy, Main Cabin includes advanced seat selection, access to Wi-Fi, snacks, complimentary entertainment, and the ability to upgrade to the premium cabin classes.
  3. Delta Comfort+: Delta’s premium economy class, previously named Extra Comfort, was renamed Delta Comfort+. This product provides an elevated experience on two-cabin aircraft. It includes additional legroom, complimentary snacks and beverages, and free premium entertainment.
  4. First Class: The premium cabin on short-haul domestic and international flights is called First Class.
  5. Delta One: Formerly called BusinessElite, Delta One offers spacious seating, pillow and blanket, food options, premium entertainment, and priority boarding.

The basic economy product is doing well in over 75 markets, and Delta plans to expand it in more domestic and Latin markets. The first-class paid load factor increased by 6% to 49% during the quarter on a 8% year-over-year growth in seats.

The revenue for premium economy product, Delta Comfort+, increased by 18% during the quarter, and the product is generating an annual additional revenue of $350 million. More Delta Comfort+ seats will be added as Delta upgauges its fleet. Revenue from premium seats should increase by $250 million year-over-year, driving more than $1 billion in revenue in 2015.

Delta Air Lines’s (DAL) peers include Southwest Airlines (LUV), United Continental Holdings (UAL), Alaska Air Group (ALK), American Airlines (AAL), and JetBlue Airways (JBLU). Investors who wish to participate in growth of airline companies can do so through ETFs such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN) that hold some of these airline stocks.

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