Delta, Hawaiian, and Southwest Talk Fleet Strategy

Mar 29, 2012

More Reading on This Topic: Delta, Hawaiian, Southwest

One of the more interesting panels in Phoenix last week was the one that focused on fleet strategy. There’s always a ton of discussion about buying airplanes, and each airline has a different philosophy. On the panel, there were representatives from Air China, Delta, Hawaiian, and Southwest from the airline side. The CEO of Airbus Americas Barry Eccleston was also there.

Today, I want to focus on the the three US airlines there and their different strategies. It’s interesting that all may include the Boeing 717 in one way or another.

Delta the Opportunist
I was most interested in hearing from Delta’s VP of Fleet Strategy and Transactions Nathaniel Pieper. You might remember my post addressing why Delta had bought current generation 737-900ERs instead of waiting for next generation airplanes. Certainly Delta’s fleet strategy has differed from other legacy airlines.

I was particularly interested in the rumor broken by Holly Hegeman at PlaneBusiness that Delta would be acquiring the AirTran 717 fleet from Southwest. We didn’t get any details on that in this panel, but after hearing Nathaniel speak, it seems clear to me that the 717 would work quite nicely for Delta considering its strategy.

Nathaniel described Delta’s fleet strategy as one of opportunism. “We have every fleet type known to man.” That’s because Delta will go into the secondary market and buy airplanes if it makes sense. The MD-90 is a perfect example of that. Delta has been acquiring every MD-90 that’s on the market because they’re cheap to acquire and they’re good airplanes that can fly many of Delta’s medium haul missions.

Nathaniel wasn’t afraid to judge others, noting that you “won’t see us enter into a commitment for 460 firm aircraft with 500 options. We’d rather play the game a bit more conservatively, be in the game a bit more frequently and take smaller bites instead of one big chunk.” Hmm, I wonder why he picked that “460” number. Oh right, that coincidentally matches a certain recent order from American. Heh.

What about airplanes even smaller than the 717? The news is not good. To the surprise of nobody, Nathaniel explained that the “economics of the [50 seat RJ] is very challenging right now.” As if that wasn’t clear enough, he confirmed that Delta would like to shrink that fleet “substantially lower.” What would replace those airplanes? Either fewer flights on bigger jets or some markets might lose service all together.

Hawaiian Loves Its Fleet
Moving over to airlines that actually operate the 717 today, how does Hawaiian feel about the airplane? Peter Ingram, EVP and Chief Commercial Officer for the airline has nothing but love. “For the unique flying we do of 100 to 200 mile hops in the islands, the 717 is very good…. We like the 717 fleet and expect to be in it for this decade at least.”

The more interesting fleet for Hawaiian is that of the bigger jets. In the last two decades, Hawaiian has gone from the L1011 to the DC-10, then to the 767 and now to the A330-200. Why the A330? The airplane apparently has “great economics” to the west coast while at the same time giving more range to reach more places in Asia. Since that’s where Hawaiian has been expanding, this makes a great deal of sense.

Southwest, the Simple Airline
Let’s go from an airline that loves its 717s to one that wants to see them gone yesterday. Did Southwest tip its hat about the fate of the 717 at the airline? No, but the way Brian Hirsham, SVP of Technical Operations spoke, it sounded like the writing is on the wall to me.

Brian explained that the Southwest fleet strategy has two parts. The first part is simplicity. “We realize tremendous synergies by operating a simple fleet.” The 717 hurts that simplicity argument, of course.

The second piece? Flexibility. “We have the ability to flex up and down in terms of fleet size.” Southwest will be retiring 120 737-300/500 “classic” aircraft over the next couple years and replacing them with current generation 737-700/800 instead. But if demand rises, Southwest can simply keep those classic 737s flying longer. And yes, that could happen if, say, Southwest decided to drop an entire fleet type.

In the end, everyone seemed pretty confident with their strategies, and that’s no surprise. A good fleet strategy is key to running an airline. Sometimes, what works for one airline might not for another. And that’s why I’m keeping a close eye on those AirTran 717s…

[Photo via Flickr user redlegsfan21/CCSA 2.0]

Brett

22 responses to “Delta, Hawaiian, and Southwest Talk Fleet Strategy”

Nick

Mar 29, 2012 at 6:00 am

Delta is also keeping around some of the DC-9s for another year. Which is also an interesting move.

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Jason H

Mar 29, 2012 at 6:48 am

I really like all three strategies, but Delta’s is probably the most interesting and likely controversial. With so many people mistakenly equating age of an airframe to safety operating older looking aircraft has a risk. Despite the MD-90 being relatively new, it looks just like the old MD-80 to the average flyer. I can’t imagine it is an inexpensive proposition to fly such a large number of different aircraft either. Not just maintenance, but crews and airport infrastructure. At the same time it seems to be the best fit because it allows Delta to do exactly what Southwest is doing, though in a different style. I see that happen in Denver where we get 757s, 737s, and the odd 767 during the winter ski season and then it moves to 737s, MD-90s/80s, and fewer 757s during the summer.

While I’m sure every flyer would love a brand new aircraft, I think I prefer the idea of a bit of an older fleet and an airline putting that money to paying down debt and improving the customer experience.

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1. Todd
  
  Mar 29, 2012 at 10:54 am
  
  The average flyer has no idea what type of aircraft he or she is flying on, or how new or old the aircraft is. I bet most people flying on ancient Delta DC-9s would have no idea how old those planes are, especially given the recently updated interiors.
  
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  1. Sean S.
    
    Apr 3, 2012 at 7:10 am
    
    People are far more concerned about size than age. I don’t know how many times I’ve boarded a commuter jet to have people complain that they were going to “die in this tiny plane”, ignoring for a moment, that the CRJ we are on is probably 20 years newer than many of the bigger jets going by us on the runway. Of course all of this is irrelevant, age, size, etc. At the end of the day people only want a smooth boarding/check in process and maybe some entertainment/wi-fi on board.
    
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Roger

Mar 29, 2012 at 6:58 am

I sure hope Southwest doesn’t get rid of those 717’s too soon. Places like PWM may not be able to support 4-5 737’s per day, and I’m sure LUV would like to fly even more frequently.

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Sanjeev M

Mar 29, 2012 at 7:52 am

LOL a Valujet :)

From a passenger point of view its the inside that matters. Delta has done a fabulous job of maintaining the interiors on old aircraft. I was on a Delta DC-9 recently and the legroom was amazing (and I’m 6’2). Then on the return the A319 legroom was horrendous.

I’d rather have a nice snack or good legroom than a brand new aircraft :)

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DesertGhost

Mar 29, 2012 at 8:18 am

Obviously, an airline has to look at the total cost of an airplane, not only fuel economy. I think the idea of Delta and Southwest working out a deal regarding the Boeing 717 makes sense for both carriers.

Delta is willing to sacrifice fuel economy for lower ownership costs. That’s fine to a point. But if you want to see the downside of that strategy, look at American. At a US Airways earnings call following AMR’s large order, Doug Parker was asked about the A320neo and said he didn’t see a major advantage to US Airways. The main factor: the neo’s higher aquisition costs.

Pundits have universally praised Southwest’s simple fleet strategy. But it’s even compromising its flexibility for lower unit costs with its acquisition of the 737-800. The larger plane means one more flight attendant. Their old scheme allowed a consistent flight crew accross the board. Now there’s more complexity.

There are no perfect solutions. But maybe with relaxed scope clauses, more airlines will be able to match capacity with demand, and aircraft like the Boeing 717 and the DC-9 (i.e. the E190/195, CS100/300 et. al) will make a comeback.

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David SF eastbay

Mar 29, 2012 at 8:29 am

Is WN so against the 717 because they would have to have two pilot bids and their simple computer can only handle one, or they don’t want to spend the money to train all the pilots to operate each aircraft type?

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1. aaron
  
  Mar 30, 2012 at 11:34 am
  
  does fit our fleet type.
  
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Henry Harteveldt

Mar 29, 2012 at 9:21 am

As an industry analyst, I like DL’s fleet philosophy: Find the planes you need to fit your mission, rather than building your approach around the fleet. Sure, fleet simplicity is good – to a point. If that simplicity limits what a carrier can do/for its network, it’s not exactly an ideal strategy. Of course, factors such as ownership and operating costs are important. The airline’s overall business strategy will dictate the fleet strategy. What works for DL, for example, may not be relevant for ULCCs like G4 and NK, which need to keep their overall costs as low as possible.

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1. Jason H
  
  Mar 29, 2012 at 10:11 am
  
  I agree, as I commented above, but since you are like minded I thought I’d ask about the one case I find interesting that wasn’t represented by Cranky’s post. Alaska.
  
  They fly a single fleet strategy like WN, but their network would seem to benefit from some longer range offerings to avoid things like tech-stops on the winter flights to Hawai’i. It seems they are working a much narrower edge between simplicity and operational flexibility.
  
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  1. Ben
    
    Mar 29, 2012 at 11:36 am
    
    Tech stops to Hawai’i? Where do they stop? Doesn’t seem to be many gas stations along those routes. I thought the 738 was more than capable of flying these routes – while the 739 was known to have problems from time to time
    
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    1. Jason H
      
      Mar 29, 2012 at 12:34 pm
      
      They come down the coast and make stops in California (Oakland and SFO seem to be the primary) to get closer to the islands before heading overwater.
      
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  2. Nick Barnard
    
    Mar 29, 2012 at 9:52 pm
    
    Sure Alaska flies a single fleet, but they do have Horizon as a regional operator within their corporate umbrella, so they have that flexibility, plus there are a few CRJ700s that Skywest flies for them. (AFAIK, they only have the CRJ700s since they couldn’t sell em.)
    
    That being said they’ve streamlined each of their operating carriers to a single fleet type (737 or Q400)
    
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Ben

Mar 29, 2012 at 11:39 am

As for the 717’s with Delta, this makes perfect sense. They can add a cheap low seat aircraft to replace many of the current crj900 and erj175 routes, freeing up those airplanes to replace 50 seat jets. They’ll add more than 80 smaller jets, so the economics aren’t as bad, and they’ll fill a gap in their fleet for much cheaper than ordering new cs-100/300’s or some other equivalent. Sounds like a smart strategy to me

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Bill from DC

Mar 29, 2012 at 2:25 pm

Would G4 be interested in some surplus 717s? At the right price, I would think so.

DL makes sense as their aircraft mix is already, shall we say, diverse. As such, it is better able to mix in yet another type of aircraft than its competitors. This would fit in with the “vulture” style low-cost aircraft acquisition strategy employed by DL in the past. I know they had about every L10 in the sky in the mid to late 90s, acquiring them from many airlines including TWA and Eastern. Might make sense for them to corner the MD (and former MD market) as well.

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Zack Rules

Mar 30, 2012 at 7:45 am

Cranky

Do you know if any airline has ever traded planes with another airline? Ie I will trade my Boeing’s for your Airbus’s, or something similar? Delta has hinted that they are not terribly happy with its 737-800’s as they prefer the MD-90’s lower fuel burn. Southwest wants the 737-800 fast, converting most of its current orders to the type. It would seem to make sense if Southwest wanted a decent sized fleet of 73 737-800’s and could trade to Delta its 88 717-200’s. Since the 737 is powered solely by CFM, engine choice would not make much of a difference here.

Also, one of reasons why Delta can fly older planes is that they have a fairly dense configuration. They just raised the MD-88 capacity from 142 to 149. Compare that to AA’s 136-140 on their MD-82’s and you understand how Delta can lower its fuel costs by adding more seats, lowering the fuel burn on a per seat. They are doing the same thing on the MD-90.

It also helps that they have really peaked their schedule in recent years and if you have a new fleet, parking new jets for half the year won’t make the lease or mortgage payments.

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1. CF
  
  Mar 30, 2012 at 8:08 am
  
  It wouldn’t surprise me if there were swaps in the past, but I don’t know of any. But I don’t see Delta wanting to get rid of its 737-800s because they fly completely different missions. The MD-90 is a medium haul airplane whereas the 737-800 has a lot more legs to do longer haul flying. So they really do need both.
  
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  1. Scott
    
    Mar 31, 2012 at 10:19 pm
    
    Canadian Pacific swapped 747 for DC10s with PIA IIRC
    
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anonymous

Mar 31, 2012 at 5:14 am

UA & DL swapped L-10 and DC-10 in the early ’80’s. UA got the L-10 in the PA Asia routes aquistion DL had Western D-10.

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Justin

Apr 5, 2012 at 12:35 pm

I really hope Delta acquires the 717s and give them a new great life!

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Minks Kanaan

Aug 5, 2012 at 7:09 pm

Delta is making a very risky move by stepping away from their successful core strategies to do this.

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