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Delta Seeks Flexibility on Haneda Slots

Published
by
Dan Webb
on June 6, 2011
in Delta
. 5 Comments

Delta Air Lines is seeking some flexibility on the slots it uses for its service from Detroit to Tokyo-Haneda…this according to a filing with the Department of Transportation (DOT).

When the DOT awarded Haneda slots (two to Delta, and one each to American and Hawaiian), it imposed 90-day dormancy conditions on them. While I’m speculating here, DOT would not like to see a carrier win a bid for slots and not use them, especially if there’s the possibility of other carriers using them.

Anyway – Delta wants to be exempt from those conditions until June 1 next year. The carrier claimed in its filing that demand to Haneda is very week, and exempting the slots from the dormancy condition will allow Delta to “judiciously manage the re-introduction of capacity over the off-peak winter months and shoulder season in the early spring.”

Delta’s service from Los Angeles to Haneda has already resumed, and Detroit service is slated to come back on the 16th. The airline said it will operate daily Detroit-Haneda flights “for a portion of the current summer season” but it would also “temporarily reduce or suspend service until Tokyo business demand returns to more normal levels.”

Interestingly, Delta also proposed that it  ”is willing and prepared to operate the slots on an interim basis for beach market service.” Delta had also proposed Honolulu service in the original bidding process for Haneda slots – is it still interested in that market?

This has to be a very interesting issue from both sides.

If I were at the DOT, there would be a few factors that I would consider. The most obvious item is the earthquake and tsunami that hit Japan, which certainly seems like a good reason to temporarily suspend service. But at the same time, Delta had already delayed the launch of its Haneda service and had downgagued flights from 747s to 777s before the earthquake, implying that the route was not performing as well as hoped. In addition to that, both Hawaiian and United have already filed with the DOT to express their interest in picking up on Delta’s slots in case they go dormant. So what’s the best decision?

At Delta, meanwhile, what happens if the DOT doesn’t give the carrier the relief its seeking? Does Delta keep flying the route? That would let the carrier hold on to the slots, but potentially have negative financial ramifications if the market remains weak. But such a move could be worthwhile if the long-term prospects of Haneda’s profitability are good, and it also means keeping a competitor out of the Haneda market.

This one will be fun to follow over the next few days, as I’d be shocked if other airlines didn’t comment.

Anyway – Delta did have some interesting tidbits in its filing. First, the carrier said it expects the earthquake’s effects to cost between $250 and $400 million this year. Delta also noted that it “has been able to mitigate the effects on its Narita operation by increasing the mix of flow traffic through its hub.”

Delta also included some interesting graphs with its filing, showing the weakness of US-Tokyo demand, especially bookings from the US:

Catching Up on Some Delta Schedule Changes

Published
by
Dan Webb
on May 26, 2011
in Delta
. 3 Comments

Over the past week or so, Delta’s been making a few adjustments to some Delta Connection routes, and I figured they were worth sharing.

Delta has been (interestingly) building up its route network out of Raleigh-Durham over the past year or so, filling the void as American has continued to trim down its further hub. The carrier is now adding thrice-daily service to Baltimore, beginning this September.

I found this interesting  for a few reasons. First, Delta will (obviously) be going head-to-head against frequent Southwest service, though perhaps Delta is hoping for (loyal) business travelers to choose them over Southwest. Second, this is not Delta’s first time taking a shot at the Raleigh-DC market. In 2009 it added RJ service to Washington-National, but the route didn’t last, so I find it interesting they’re now trying at Baltimore. (Based on this week’s slot swap news, however, Delta might not have many DCA slots to spare in the future.)

In addition to this new service, Delta is trimming its recently-added flights from Raleigh to Providence and Albany in September.

Delta is also planning on axing its regional service from Jacksonville to Miami. The route was announced back in March by the airline, which said at the time it would help provide connections to its new nonstop service to London-Heathrow. Delta’s new routes to Miami from Orlando and Tampa, however, are still in the carrier’s timetable.

Finally, Delta’s making an interesting move in Houston. Delta currently serves both Intercontinental and Hobby, though the latter airport only has service to Atlanta. But this September service from Cincinnati and New York-JFK will be shifting to Hobby. I wonder why? I suppose one could make the argument for convenience.

 

 

Delta and US Airways Announce New Slot Swap Deal

Published
by
Dan Webb
on May 24, 2011
in Delta and US Airways
. 1 Comment

Can you believe it’s been nearly two years since the slot swap was first announced? In case you need a review — US Airways and Delta announced they would make a trade of slots at New York-LaGuardia and Washington-National. Regulators, however, were concerned about the competitive effects of the trade and wanted some slots to be divested at the airports for carriers that did not serve or had a limited presence at these airports.

Delta and US Airways didn’t really like that idea, but they came up with their own compromise with a smaller amount of slots being divested to airlines selected by Delta and US Airways. The government didn’t go for it, and then the deal went to court.

And now we’ve been waiting ever since…until yesterday! The carriers dismissed their case and have submitted a new proposal to the DOT. Let’s compare the original deal to what was announced yesterday:

Original Deal

  • US Airways gives Delta 125 slot pairs at LaGuardia (and the option to lease 15 more)
  • Delta gives US Airways 42 slot pairs at National
  • Delta also gives US Airways rights to operate to Sao Paulo starting in the second half of 2010
  • Delta also gives US Airways rights to fly to Tokyo-Narita, but US doesn’t plan to start service until 2015

New Deal

  • US Airways gives Delta 132 slot pairs at LaGuardia
  • Delta gives US Airways 42 slot pairs and National
  • Delta also gives US Airways $66.5 million in cash
  • Delta also gives US Airways the rights to operate to Sao Paulo beginning in 2015
  • The carriers are willing to give up sixteen slot pairs at LGA and eight at DCA

So let’s look at the changes. Why is Delta getting more slots at LaGuardia? Who knows. Their plan for New York might have changed a bit and they might now be planning on some divestitures. The Tokyo-Narita part of the deal isn’t needed anymore thanks to a new open skies agreement between the US and Japan. I’m not sure why the date for Sao Paulo service changed, but it could be because US Airways and United have already set up a temporary deal for US Airways to get access there. The cash to US Airways probably compensates for many of these changes. US Airways hasn’t said what they’ll do with it, though I would point out that $66.5 million more than compensates for US Airways’ planned upgrades of regional aircraft.

The possible slot divestitures are very interesting. Take a look at this press release from last year about the proposed Delta-US Airways compromise emphasis mine):

With the new six-way agreement, Delta would operate an additional 110 slot pairs at LaGuardia; AirTran, Spirit and WestJet would obtain five slot pairs each at LaGuardia from Delta; US Airways would acquire 37 slot pairs at Reagan National; JetBlue would gain five slot pairs from US Airways at Reagan National; and US Airways would gain access to Sao Paulo and Tokyo.

Meanwhile, here’s an excerpt from yesterday’s US Airways SEC filing about the deal:

In addition, if required by the regulatory authorities, the transaction could result in the divestiture by Delta of up to 16 slot pairs at LaGuardia and eight slot pairs at Reagan National to airlines with limited or no service at those airports.

I need to do some more digging, but I’m wondering what that exactly means for this deal now that Delta is divesting the slots at both airports. If Delta is on the hook at DCA, and not US Airways, does that mean US Airways gets 42 slot pairs no matter what? I need to research this further.

Anyway, let’s see what the government thinks of the deal this time around. The industry has changed a lot since August 2009. Continental and United have since announced and closed their merger. Southwest will have access to both airports involved through the merger with AirTran, and now JetBlue has a presence at DCA.

But I think this deal could lead to some interesting benefits for consumers. Delta plans to up-gauge regional routes currently flown by US Airways out of LGA, and US Airways says it will add at least fifteen new destinations out of DCA. In addition, the carriers planning some facility upgrades at LGA. Delta will start flying out of Terminal C at LaGuarida (in addition to D and the Marine terminal) and connect it to Terminal D. Delta will convert the US Airways Club in Terminal C to a Sky Club, and US Airways is planning on a brand new lounge at LGA.

Anyway, this is certainly an exciting move. Let’s see how this develops.

Highlights from Delta’s Investor Presentation Today

Published
by
Dan Webb
on May 19, 2011
in Delta
. 0 Comments

Delta filed an investor presentation with the SEC today and also put out a press release on trans-Atlantic capacity. Let’s take a look.

The carrier’s news release states that it along with its SkyTeam joint venture partners – Air France, Alitalia, and KLM “will adjust their combined network and decrease capacity by reducing frequency on selected routes during the fall and winter seasons and right-sizing the joint venture fleet across the Atlantic while introducing seasonal flying to warm weather destinations.”

The news release doesn’t elaborate further on any of these adjustments, but the investor presentation shows the dramatic change in capacity plans. One interesting thing to consider here is that Delta has said some widebody retirements are in the cards.

Delta also had some details on its own capacity, saying system capacity would be down 4% after Labor Day. Note that only few weeks ago the airline said it “expects system capacity for the post-Labor Day period to be down approximately 3% compared to the prior year period.”

Meanwhile, Delta went through some of its current results, noting increases in RASM over the past two months:

Anyway, those were the key takeaways for me. You can view all the slides here.

What’s Delta’s Next MD-90?

Published
by
Dan Webb
on May 6, 2011
in Delta
. 4 Comments

Delta filed its first quarter 10-Q with the SEC yesterday, and there was an interesting line on possible future fleet moves:

We are also evaluating the future replacement needs for our domestic mainline fleet. If determined necessary, we will seek to acquire previously owned aircraft or place an aircraft order to replace less efficient aircraft.

Of course, it’s not news that Delta is looking for new narrowbodies. We’ve known this for months. But the line about “previously owned aircraft” got me thinking. Back to that in a moment.

There are plenty of narrowbodies that could use replacing at Delta. The remaining DC-9-50s (currently being grounded) come to mind, as do the the now-retired DC-9-30s and -40s. The carrier’s fleet of over 100 MD-80s is starting to show its age (nearly 21 years on average), and the 757-200 (over 18 years) could possibly be considered as well.

Eventually, Delta will need to replace its 737-800s and the A320s acquired from Northwest, but that’s probably a bit further out.

With so many fleet types to consider, every major Western OEM has a potential hat in the ring. Embraer can pitch the E190/E195, Bombardier the CS100/C300, Airbus the A320neo, and Boeing the 737NG or whatever new narrowbody it announces (or a combination thereof).

The fact that Delta is interested in “previously owned aircraft,” however adds a very interesting twist on how to think about Delta’s future narrowbody fleet. This line would imply that Delta been pleased so far with its decision to build up its fleet of MD-90s with used frames.

Photo Credit: Jay Bowie

With that in mind, one should consider what used aircraft could be utilized. For the DC-9, one could consider secondhand members of the A320 family, especially the A319, and maybe by a longshot, the A318. The 717 comes to mind as well, though the vast majority of that fleet is caught up with Southwest/AirTran and will be for the conceivable future. Another possibility is the 737-700, but so far Delta has kept that fleet small and for certain missions.

On the MD-80 side, used A320s or 737s could certainly be utilized. Finally, for the 757 there’s the off-chance of some secondhand 737-900s being used on some missions, but that’s unlikely. The A321 would be a much more likely contender.

The common thread here is used A320-family members. Delta could build up its own fleet with secondhand aircraft that are more effciient than existing narrowbodies. Sure, a current-technology A320 might not be the greatest but it will still beat an MD-80 and will be cheaper than a new build.

The next question, of course, is if the price of an older aircraft is enough to compensate for the slightly poorer cost performance of a new aircraft.

Fortunately, the existence of the A320neo has the possibility to do just that, depeneding who you ask. There have been some critics of the neo program who believe it could drive down the values of current A320s.

Is the A320 Delta’s next MD-90?

The Latest on Delta-V

Published
by
Dan Webb
on May 4, 2011
in Delta, V Australia and Virgin Blue
. 0 Comments

I had been meaning for awhile to write about the latest on the proposed immunized alliance between Delta and Virgin Blue, V Australia, and Pacific Blue, but I got stuck into schoolwork. The re-branding that Virgin just accomplished and the expansion of the existing codeshare agreement, however, got me thinking about it again.

Last year, the DOT tentatively denied the application for anti-trust immunity. You can read the entire ruling here, but this line sums it up pretty well:

There is little evidence at this point to conclude that the proposed alliance will benefit consumers to the degree necessary to justify a grant of antitrust immunity.

Since then, Virgin and Delta have been working to help make this deal work. There have been a couple of interesting DOT filings of late that outline their progress.

One issue mentioned in an October filing from the carriers was that while “the V Australia and Delta systems are already fully compatible” there was a “compatibility issue is with Virgin Blue’s short haul networkreservation system, which is hosted by Navitaire.” The carriers reported, however, that they had “devised a manual work-around solution, which they arecurrently using to support the limited beyond codesharing that has been implemented.”

More progress on this front was made a couple of weeks ago, as Delta reported to the DOT that Virgin Blue had completed a systems upgrade on April 17. Because of the change, “compatible systems and procedures are now in place to support automated codesharing acrossthe Delta/Virgin Blue Group networks under the proposed joint venture, including the display of DL* code on flights operated by Virgin Blue and Pacific Blue,” according to Delta.

Another interesting filing that had cropped up of late was the public version of the capacity commitment between Delta and Virgin. We had known for awhile about this agreement. In a January filing, the carriers said they had committed to not “reduce nonstop service between the U.S. and Australia below their respective historicalservice baselines as a result of the Department’s approval of and grant of antitrust immunity.”

The public version of the agreement has further details. Will Horton has a pretty in-depth look at the details over at his Wings Down Under blog, but I’ll provide the highlights here.

Both airlines plan to maintain historical levels of service. On Delta’s side that means seven departures from the United States during the peak season and six during other times. For V Australia it will be 14 departures during the peak season and 11 in off-peak times. Each carrier will operate a peak schedule for at least six months of the year.

The airlines do say, however, that they might have to reduce service in the case of extreme factors beyond their control. They specifically mention the price of WTI crude going over $120, a drop in the AUD:USD exchange rate below 0.8:1, a drop in the Dow below 9,000 or the ASX below 4,000, and events like natural disasters and terror attacks. If the carriers end up reducing service due to external factors, they will “seek prior approval from DOT to continue the effectiveness of antitrust immunity absent the capacity commitment.”

Interesting stuff – let’s see if the DOT likes what it sees.

Why Last Week’s Republic Announcement is Interesting on Multiple Levels

Published
by
Dan Webb
on May 2, 2011
in Delta, Frontier and Republic
. 0 Comments

Last week, Republic Airways Holdings announced it would be transferring an additional six Embraer 170 aircraft from Frontier to Delta Connection operations from July through October. In January, Republic announced the transfer of eight 170s to Delta. Once all the transfers take place Republic subsidiaries will be operating 54 aircraft for Delta – 16 E175s, 14 E170s, and 24 E145s.

This news release is interesting for many reasons.

First, it’s good to see Republic to gain some new CPA business, especially as (right now) because “unless otherwise extended or amended, the E145 code-share agreement” that Republic has with Continental “terminates on September 4, 2012,” according to Republic’s most recent 10-K. That document indicates seven aircraft will leave service this year with eight more in 2012.

Second, this move has implications for Republic’s sources of revenues, since the aircraft are coming out of the branded operation and into the fixed-fee business. On the fixed-fee side, Delta is Republic’s third-largest partner, representing 18% of fixed-fee revenue for 2010, according to Republic’s 10-K. That same document says US Airways and United accounted for 38% and 31% of their fixed-fee revenue, respectively. In addition, US Airways and United each contributed 15% and 12% (respectively) to Republic’s total operating revenue last year.

Using those numbers and a few other data points from the 10-K we can estimate Republic’s revenue sources and we get something like this:

By increasing Delta flying, it appears that this move will better balance the amount of revenue that each of Republic’s top three partners contributes to the company. It’s also worthy of note that on the fixed-fee side of the house, it’s the mainline carrier that takes on the fuel price risk – not Republic.

From the Delta side of things, it’s interesting to see them retire DC-9s, 50-seat RJs, and Saab 340s, while building up the 70-seat RJs. The retirements outnumber the additions but it’s still interesting to watch.

But back to Frontier.

The carrier was already planning to remove the E170 from service, but previously the carrier wasn’t expecting the aircraft to leave until 2013.

In addition, the six E190s that the carrier had on order for the Frontier operation will “delayed by an average of two months due to part delays as a result of the earthquake in Japan.” Those aircraft were originally slated to enter service in the second half of this year, but due to the delays will not be delivered until the beginning of 2012.

Lots of interesting stuff to consider here, and there are still a lot of details to sort through (i.e. what routes are affected by the cuts). Hopefully more to come.

Delta Changes its Hedge Portfolio

Published
by
Dan Webb
on April 28, 2011
in Delta
. 0 Comments

When Delta reported earnings earlier this week, the carrier said it had “repositioned its fuel hedge portfolio in response to the dislocation in price of West Texas Intermediate crude oil (“WTI”) to jet fuel” by changing “the majority of Delta’s WTI positions to Brent crude oil or heating oil.”

According to a chart provided in the earnings release – 10% of Delta’s second quarter fuel consumption is now hedged with instruments (swaps and collars) tied to WTI. Meanwhile, 25% is tied to heating oil and 14% is tied to Brent crude.

So, let’s take a look at the aforementioned dislocation. Over the course of the year the spread between WTI and Brent (two of the major types of crude) has been at historical highs. There’s a lot of good literature speculating on the reason for this disparity, but I won’t get into that here.

Just for fun, I created four separate price indices for the spot prices for four different items – WTI Crude, Brent Crude, heating oil, and jet fuel. All data is from the Energy Information Administration. The value of each index is calculated by taking one day’s spot price and dividing it by the first day’s spot price divided by 100 – so for example (Day 10/(Day 1/100)).

Anyway – here’s a chart. The spread becomes pretty obvious:

Delta Responds to Hawaiian’s Haneda Filing

Published
by
Dan Webb
on April 12, 2011
in Delta and Hawaiian
. 1 Comment

Delta Air Lines has responded to Hawaiian Airlines’ efforts to secure back-up authority on Delta’s slots at Tokyo-Haneda’s airport, saying the application “is without merit.”

Hawaiian said last week that it would add a second daily flight from Honolulu to Haneda if it were to secure an additional slot. Delta suspended service to Haneda from Detroit and Los Angeles last month in the wake of the earthquake and Tsunami that devastated Japan.

The DOT awarded Haneda slots last year to American, Delta, and Hawaiian with 90-day dormancy conditions. Delta currently plans to resume service to Haneda from Los Angeles and Detroit on June 2 and June 16, respectively. Delta notes in its response that both dates are in compliance with the dormancy conditions.

“Hawaiian admits that its loads on the Tokyo-Honolulu route have declined since the disaster, and every U.S. carrier serving Tokyo from the U.S. mainland has dramatically reduced capacity,” says Delta.

I found that sentence from Delta to be very interesting. The first part  mentions Hawaiian specifically, but the second part excludes Hawaiian by only focusing on carriers operating to Haneda from the mainland. It’s worth noting that Hawaiian has retained daily service to Haneda.

Anyway…it’s always fun to watch airlines debate in the DOT docket. It will be interesting to see if the DOT ends up awarding back-up authority, but all of this is moot if Delta resumes service within the 90-day window.

United Seeks Haneda Back-Up Authority

Published
by
Dan Webb
on April 5, 2011
in Continental, Delta and United
. 5 Comments

United and merger partner Continental are seeking back-up authority for slots at Tokyo’s Haneda Airport, according to filings with the Department of Transportation. If given such authority, the two airlines would be able to launch service if another carrier ends Haneda services and loses its slot, avoiding another slot proceeding process. The two carriers say they can provide service to the cities that were in their original applications last year – Guam, Newark, and San Francisco.

The Haneda slots were awarded to carriers with dormancy conditions – meaning the slots would be lost if they were not used for 90 days.

The application for back-up authority is not exactly new – at least for Continental. The airline asked last year for back-up authority to fly Guam-Haneda (service would be operated by Continental Micronesia) as well as authority to fly from Newark to Haneda. In its final order, the DOT did not award this authority.

“To avoid any risk to Haneda the Department should act immediately to name Continental and United as back-up carrier in the event that Delta (or any other Haneda-authorized U.S. carrier) decides to abandon service at Haneda,” the carriers say. They also say that if a carrier were to stop serving Haneda, the process to re-allocate the slots would  ”loss of much needed Haneda service…that will be particularly harmful to the competitive position of the U.S. carrier industry if reciprocal services by Japanese carriers continue.”

As part of its application, United and Continental note that both American and Delta requested (and received) permission to delay the launch of of Haneda services, and that Delta was suspending service to Haneda. (While not noted by United, American is also suspending Haneda service, but for a shorter time than Delta.)

Delta responded to United and Continental in a DOT filing, saying that it is not “abandoning Haneda service. Delta’s Los Angeles-Haneda flight resumes on June 2, and Delta’s Detroit-  Haneda flight resumes on June 16 — both in full compliance with the Department’s 90 day dormancy condition.” The Atlanta-based carrier also points out that “United does not mention the Japanese tsunami or its impact on U.S.-Tokyo air service. Delta’s response of temporarily suspending Haneda service until the immediate effects of the disaster have abated.”

There’s been no word from the DOT yet, but it will be interesting to see what is said. As Delta mentioned, the service is scheduled to resume within 90 days, meaning they are in compliance with the DOT’s ruling. Even if Delta’s service suspension was to last longer, I have to think that an unpredictable and incredibly harsh natural disaster is a pretty good reason to halt service temporarily.

But, with all that in mind…I do think that United and Continental have a very interesting point here that they didn’t bring up (though it wouldn’t affect the dormancy rules). In early March – before the earthquake and tsunami – Delta updated its schedule to reflect a capacity reduction at Haneda, replacing 747s with 777s this summer. As the always-useful Airline Route blog points out, the use of the 747 was a selling point for Delta’s service to Los Angeles and Detroit.

In its tentative order awarding the slots to Delta, the DOT said that Delta’s “significant capacity advantage is particularly compelling at Los Angeles,” and said in its final order that using the 747 on the LAX-HND route would “inject significant capacity into the U.S.-Tokyo market by Delta’s use of B747 aircraft.”

The DOT also said in its tentative order that Delta’s “proposed use of B747 aircraft for its Detroit service would also maximize use of its hub gateway in serving Haneda.” Delta said in its application that it “is proposing its largest aircraft – the Boeing 747-400 for Detroit. The 403 seat capacity of the 747 will help to maximize the value of the scarce Haneda slots that are available to U.S. carriers.”

Why do I bring this up? When objecting to the awards to Delta, both United and Continental (separate at the time) expressed doubts about Delta’s plan to utilize the 747.

“The likelihood that Delta would continue offering two daily B-747 flights between Detroit and Tokyo, one serving Haneda and the other serving Narita, is questionable,” said Continental. “If Delta operates its Haneda flights with smaller aircraft or terminates them altogether the Department’s premise for awarding Delta Haneda authority would evaporate,” the carrier added.

United warned that “the purported capacity advantages of Delta’s proposed Los Angeles and Detroit service may be largely illusory,” noting that Delta “already operates daily non-stop service to NRT from Detroit and Los Angeles using B747 aircraft. It may have considerable difficulty selling twice as many daily seats at Detroit, where the local market is far too small to support a doubling of capacity, and at Los Angeles, where extensive Tokyo service already exists and where Delta’s prospects of generating any significant volume of connecting traffic for its HND service are slim.”

In the case of Newark-Haneda and San Francisco-Haneda, Continental and United would’ve operated the 777-200, obviously much closer in size to what Delta has currently scheduled than the 747-400 service originally proposed.

Interesting stuff.