The airline industry for the last year has been shaken up due to the ongoing crisis. As borders remain closed and entry requirements continue to change, carriers are adapting and learning new things on a near daily basis. Many airlines noted that blocked seats onboard an aircraft artificially cap capacity at a time when carriers need all the revenue they can get. One airline that bucked that is Delta. Now, Delta’s executives are stating that the airline is getting a “meaningful premium” from its move to block middle seats.
Delta is getting a revenue premium
Glen Hauenstein, President of Delta Air Lines, stated the following on the airline’s fourth-quarter 2020 earnings call:
“And despite having meaningfully less inventory per sale giving our middle seat block, we outperformed on passenger revenue generation in the first nine months of the year. This is a testament to customers’ willingness to pay a premium for the Delta difference.”
A closer look at the airline’s financial results from 2020 shows that, despite turning a net loss of about $12.4 billion, the airline’s passenger revenue per available seat mile (PRASM) was about 9.59 cents, which was down 38% from 2019’s 15.35 cents.
For reference, American Airlines’ PRASM in 2019 was 14.74 cents, and United’s was 13.90 cents in the same year. Both airlines are expected to clock in lower than 10 cents, given the incredibly low fares of 2020 and the downturn in profitable long-haul international travel.
Why Delta is getting a revenue premium
Delta is the one airline that has bucked the trend and continued to institute load caps onboard all its flights. Alaska Airlines and JetBlue only recently ended their policies. Southwest did it just after Thanksgiving. Southwest stated the policy was expected to cost them up to $100 million in lost revenue.
This leaves Delta as the only airline that blocks middle seats, which some wary travelers may be willing to pay extra for so they do not have to sit next to a stranger. While it varies from route-to-route and plane-to-plane, most people flying mainline narrowbody jets domestically are flying with a free seat between two passengers.
Fewer passengers onboard mean more room for bags, more room to move around, and more room to social distance – which is something many travelers who shop by product and not by price are noticing and paying for.
Delta also has a good reputation amongst premium travelers and a base of loyal customers on which it can rely for some added revenue. Combined with the seat blocks, the airline appears to have cracked the code for getting a revenue premium while blocking seats and moving closer to profitability compared to other airlines.
In essence, Delta is sitting on a monopoly of this experience. Before during the summer and fall, the airline was not the only carrier blocking seats, so it could not differentiate itself much from the airlines that were blocking seats.
When will Delta remove load caps?
Delta’s executives did not comment on when it would be removing load caps. The carrier has not decided when it will unblock middle seats, but it continues to evaluate the possibilities. The airline will watch its customer demand, customer input, and customer confidence before it unblocks middle seats.
Delta expects an inflection point this spring when a vaccine becomes more widely distributed and borders start to reopen. This point will be characterized by growing consumer confidence, and lengthening of the booking curve, and bringing down a cash burn to break-even or better. Delta expects this to happen in the second quarter.
Delta will, however, reach a crossroads. Customers generally seem to like blocked middle seats, but Delta will need to unblock them one day. At the crossroads, Delta will be at the point where it needs to add more capacity– though not necessarily new frequencies– and it does not have the ability to readily upgauge aircraft as it has in the past to catch as much demand as possible.
If not the spring, then that crossroads will definitely come by the summer, when more people are expected to get onboard an aircraft. Delta will unblock seats by then since it will have no other choice unless its team is ready to lose out on the possibility of gaining additional revenue.
For now, Delta is generating a revenue premium by blocking its seats and offering customers a more premium experience space-wise, even if its onboard service remains limited. There may only be a few months left of this before Delta has to end those caps.
Did you choose to fly with Delta last year because of the blocked middle seats? Let us know in the comments!