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DAL Adds More Capacity to Most Profitable Transatlantic Route

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Additional capacity

Delta Air Lines (DAL) has been aggressively adding capacity in terms of average seat miles. In October, it increased its capacity 3.2% year-over-year. Year-to-date as of October, Delta Air Lines’ capacity has risen 3.4% year-over-year. The growth is much higher than the growth in 2017, when the company increased its capacity by just 1%.

The domestic market continues to see high capacity growth. In October, the market’s capacity grew 4.7% year-over-year while the growth rate was 5.2% year-to-date. However, international capacity increased just 0.4% as the company lowered its capacity in the Pacific region by 1.8%, which partially offsets the benefit of capacity additions in the Atlantic and Latin American regions of 2% and 0.4%, respectively.

Year-to-date through October, the company’s international capacity has grown 0.5% year-over-year. In the Atlantic region, the company has increased its capacity 2.6%. However, in the Pacific and Latin American regions, it has reduced its capacity by 2.2% and 1.3%, respectively.

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Focusing on the transatlantic route

Since the beginning of 2018, Delta Air Lines has been strategically reducing its capacity in the Latin American and Pacific regions to better invest in more profitable routes of the transatlantic market, which mainly comprises flights between Europe and the United States. The strategy has helped the company improve its total or passenger revenue per available seat mile (TRASM or PRASM).

During the third quarter of 2018, Delta Air Lines’ TRASM improved 4.3% year-over-year to 16.25 cents from 15.58 cents reported a year ago. The growth rate was much higher than its top peers—Southwest Airlines’ (LUV) and American Airlines’ (AAL), which reported TRASM growth of 1.2% and 1.8%, respectively. United Continental’s (UAL) third-quarter TRASM growth of 6.1% was the highest in the US airline industry (JETS).

Outlook

The company is adding capacity to capitalize on the growing opportunities from an improving global economy, mainly the United States and Europe. In the United States, GDP has shown remarkable growth in the first three quarters of 2018. The healthy job market and a steady increase in wages are driving travel demand. In an improving economic scenario, consumers’ discretionary income increases. Consumers tend to travel more, which drives the demand for airline companies.

Delta Air Lines is aiming for capacity growth of 2.3% in 2018. The company has been increasing its capacity to lower its fleet costs and compete aggressively against low-cost carriers.

United Continental and Southwest Airlines provided their October capacity growth data. Last month, United Continental and Southwest Airlines increased their capacity by 5.9% and 7.7%, respectively. American Airlines hasn’t reported its October numbers yet.

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