year-over-year (YOY) profit decline even as the company
generated $11.6 billion in revenue for the three-month
period, up 8% YOY and the highest quarterly revenue
in Delta’s history.
“We have seen early success in addressing the fuel
cost increase … [but] while this is good progress, there’s
still more to be done,” Bastian told analysts and report-
ers. “Strong demand, a recovering fare environment and
momentum across our business will all be critical as we
work to fully recapture higher fuel cost.”
Chicago-based United Airlines is under the most
pressure from Wall Street to curtail capacity growth. Te
carrier has unveiled an aggressive plan to increase capac-
ity 4%-6% per year in 2018, 2019 and 2020, as it seeks
to shore up a domestic network the current manage-
ment team led by CEO Oscar Munoz has determined is
lagging rivals American and Delta Air Lines.
Te growth is necessary because United, under pre-
vious management, degraded its level of connectivity
at its hubs—particularly mid-continent hubs Chicago
O’Hare, Denver and Houston Intercontinental—to
focus on international flights and domestic flights be-
tween major markets, president Scott Kirby explained.
Te carrier abandoned smaller markets around the US,
cutting passengers out of its network and damaging its
competitiveness against American and United. “Our
mid-continent hubs need the same kind of connectiv-
ity as our competitors’ hubs,” Kirby said. “When you
start shrinking a hub, everything gets worse … Years
of shrinking or flatlining; while that was happening,
our competitors were taking advantage of a shrinking
United reported a second-quarter net profit of $684
million, down 16.7% from net income of $821 million
in the 2017 June quarter. Te relatively small drop in net
income YOY came despite a 43.2%, or $721 million,
YOY increase in spending on aircraft fuel. “Fuel is a little
more volatile than it’s been, but we’re managing that just
fine,” acting CFO Gerry Laderman told analysts and re-
porters. He noted that non-fuel unit costs declined YOY
in the second quarter and are expected to be flat to down
1% in the third quarter. CASM ex-fuel lowered 1.2%
YOY in the second quarter to 9.69 cents.
“Tere’s terrific cost discipline,” Laderman said.
“Tat’s a culture shift in the company that I think is
here to stay.”
While United’s focus is on its domestic network,
Delta continues to partner with international carriers to
extend its global reach. An accord with Canada’s WestJet
to launch a transborder joint venture (JV), slated to formally begin in 2019, marks Delta’s eighth cross-border
agreement with another airline that features a JV or an
equity stake, or both. In May, it officially launched a
transpacific JV with Korean Air.
Also in 2019, Delta plans to combine its transatlantic JV with Virgin Atlantic (in which it owns a 49%
stake) with its transatlantic JV with SkyTeam partners
Air France-KLM and Alitalia.
North of the border, meanwhile, the Canadian airline
industry is jumping on the ultra-LCC trend that has already taken hold in the US and other parts of the world.
Canada’s airports have grown for eight straight years,
reaching a record139.4 million passengers handled in
2017, about half of whom flew domestic itineraries. But
very few of those passengers have flown on ULCCs.
Tat may be about to change. Calgary-based WestJet
ULCC subsidiary Swoop operated its first flight on June
20. ULCC Flair Airlines recently made Edmonton its
new headquarters and is growing rapidly. Vancouver-based ULCC startup Canada Jetlines is eyeing a 2019
launch. Air Canada continues to build its LCC affiliate,
Te Canadian ULCCs believe that—as has been the
case in Europe, the US and Mexico, among other places—there is an untapped segment of air travelers who
are willing to fly if the price is low enough.
Indeed, despite rising costs, the US market’s growth
pace-setters continue to be Fort Lauderdale, Florida-based Spirit Airlines and Denver-based Frontier Airlines, both established ULCCs.
And for the first time in more than a decade, a
serious new startup is being planned for the US market. A group of investors headed by David Neeleman,
a former Southwest Airline executive who founded
New York-based JetBlue Airways and then Azul Brazilian Airlines, announced an MOU in mid-July for
60 Airbus A220-300s (formerly Bombardier CS300s).
While the yet-unnamed airline’s launch is not until
2021, the US consolidated majors will be scrutinizing
the potential impact of this new competitor in their