Delta's Capacity Cuts Show Why Less Is More
It's earnings time once again. The weather is warming, the cherry blossoms have bloomed in Washington, and once again airlines are posting first quarter losses. The first big hitter of the season is Delta (DAL), which posted a $192 million loss, excluding special items or $256 million including them all. The good news is that those figures met analyst expectations. But rather than focus on the numbers, let's take a closer look on the impact capacity cuts have had on the airline.
There's an interesting chart in the earnings release that shows the difference between Q1 2010 performance and Q1 2009 performance. Take a look:
| Increase (Decrease) 1Q10 vs 1Q09 | |||||
|---|---|---|---|---|---|
| Passenger Rev | 1Q10 ($M) | Chg YOY | Unit Rev | Yield | Capacity |
| Domestic | $2,668 | 3.9% | 6.1% | 5.4% | (2.0)% |
| Atlantic | $858 | 0.5% | 17.5% | 7.9% | (14.5)% |
| Latin America | $395 | 0.5% | 0.3% | (1.9)% | 0.2% |
| Pacific | $565 | 2.2% | 0.2% | (1.5)% | 2.0% |
| Mainline | $4,486 | 2.7% | 7.6% | 4.6% | (4.5)% |
| Regional | $1,320 | 7.0% | 10.9% | 5.6% | (3.6)% |
| Consolidated | $5,806 | 3.7% | 8.4% | 5.1% | (4.4)% |
Specifically, notice that capacity dropped 14.5 percent in the Atlantic while it was slightly up in the Pacific and Latin America. If that doesn't show the benefits of capacity decrease, I don't know what does. Think about this: Delta flew 14.5 percent fewer seat miles (number of seats times number of miles flown) over the Atlantic, yet revenue actually increased. Talk about getting rid of bad capacity.
These results reflect a mix of economic recover factors combined with smart route planning. For a time, Delta over-extended itself with Transatlantic flying. Places like Kiev should never have been served in the winter (or in the summer, for that matter). So getting that out of the system and rationalizing with the Northwest route system had a big impact on the revenue picture.
I hate to sound like a broken record, but let's hope the airlines keep up their capacity constraint.