Everything Is (Apparently) Fine In Atlanta

The government is investigating the frequent flyer programs at Delta and three competitors. And Delta's operation melted down in July. But two executives say things are going just fine.

Dear readers,

The U.S government is asking questions about Delta’s extremely lucrative frequent flyer program (along with United’s, American’s and Southwest’s) and whether it fleeces its customers and needs more regulation. Oh, and its operations melted down in July for almost a week after a third-party technical error. But don't worry: Delta executives remain confident about the durability of their brand, their earnings, and yes, their own talents.

"We're pleased with the performance of the business in the quarter," CFO Dan Janki said last week at Morgan Stanley‘s 12th Annual Laguna Conference. "When you couple that with the first half of the year ... that really puts us in a good position year-to-date."

I’m sure that comment won’t surprise you. It is true that Delta has been a well-run company since Richard Anderson arrived in 2007 as CEO, and its commercial team (led by the talented and somewhat mysterious Glen Hauenstein¹) has racked up victory after victory by building strong positions in Los Angeles, New York, and Boston, while leading the industry in responding to consumer trends, such as the yen for premium and long-haul travel. I have heard from readers who wonder if Delta has lost a bit of its mojo since the pandemic — and I think it's a valid question, if only because the gap between it and United has narrowed — but Delta's executives have not lost their we-are-the-best swagger. Not even after the Crowdstrike disaster, which cost Delta about $380 million in lost revenue for the third quarter, plus $170 million in extra expenses.

Still, Delta's guidance backs up management's claim that everything is fine in Atlanta. Like many airlines — most recently United — Delta does not share granular unit revenue guidance. But in an update last week, the airline reported that unit revenue trends are "improving," and that September should have positive year-over-year unit revenue in two important sectors — domestic and transatlantic. On full-year earnings-per-share, CFO Dan Janki said the airline will meet or slightly exceed the midpoint of its earlier guidance (that means $6-$7 per share) "with and without the impacts of the tech outage."

And, the future looks up, for reasons that don't have that much to do with Delta. The industry is paying less for fuel — according to IATA, North American carriers are paying nearly 30 percent less for fuel than one year earlier — as several U.S. airlines are reducing capacity. "When you have fuel heading down and you have revenues heading up, that's a pretty good indication that the airline industry is in a good spot," Hauenstein said.

So, maybe everything is OK in Atlanta, all things considered. But I think there’s more to Delta’s story. Let's take a look at some of the most interesting items from Delta's appearance at Morgan Stanley's conference, including Hauenstein's and Janki's views on the Crowdstrike drama, their pushback on the DOT’s investigation of frequent flyer programs, their Vasu Raja-esque opinions on the future of corporate travel, and their thoughts on whether the market can absorb more premium seats.