Delta Should Have Bigger Plans For Its Silver Airways Codeshare

Delta, Silver Airways

I linked to the press release announcing the Delta and Silver Airways would be entering into a codeshare arrangement on Friday, but I decided this was worth a broader post. On the surface, this may not look like much more than an updating of the previous Delta/Seaborne deal, but if Delta is smart, there should be something broader brewing here.

Silver is a small operator in Florida that has plans to get bigger. It flies under its own brand and code and has for years. This particular brand has been around only since 2011, but it operated for more than two decades under the name Gulfstream International prior to the name change. In 2018 it bought out Seaborne in the Caribbean and began a slow integration.

Silver was primarily a Saab 340 operator, now with 21 of the 34-seaters in the fleet. Seaborne has another 4 Saab 340s along with a couple Twin Otters. Take a look at the current network, including Seaborne at the bottom.

Silver Route Maps

Silver’s business model has always been goofy. It tries to fly on routes that have good local demand it can sell under its own name. But it also has a long-standing codeshare with United as well as more recent ones with American and JetBlue, among others. Further it has interline agreements with Alaska, Delta, and a few international carriers. Despite an historically poor operational performance record, Silver has served an important role connecting Florida communities (and now the Caribbean) to the outside world.

Part of the operational issues can be blamed on the aging Saab fleet. In 2017, Silver looked to rectify that with a big order for 20 ATR turboprops and options for 30 more. The first ATR arrived on property earlier this year.

Silver’s initial plan is to take on 16 of the 46-seat ATR-42s with 4 of the 70-seat ATR-72s. That means even if Silver wanted to replace all 25 of its Saabs with these ATRs, it would still have 20 percent more seats in its fleet than it has today. But Silver doesn’t appear to want to stop there. It wants to fly more airplanes and exercise at least some of those 30 orders.

This is not going to be an easy task. It has tried to venture into more distant markets like Huntsville, and it has the ability to try to re-shape the Caribbean operation, but ultimately Silver is looking to bring on a lot of capacity here. It’s not clear there’s an easy place to put that and make money.

Enter Delta. Remember that Delta has recently won LATAM’s favor and the two will enter into a joint venture. Delta has long had a large presence in Florida, but LATAM’s most important market, Miami, is a virtual blank spot. Outside of its hubs and focus cities, Delta only serves Havana alongside a couple of Saturday-only seasonal flights on regionals to places like Columbus and Washington/National. Delta has pledged that it will build up Miami to support LATAM, and that requires basically building from scratch.

This is where the potential for this Delta/Silver codeshare turns interesting. On the surface, this looks like nothing more than a minor footnote. Delta used to codeshare with Seaborne in the Caribbean, and now it has been able to transfer that over to Silver. But Delta needs to build up in Florida to keep its promise to LATAM, and Silver needs to find a way to productively use its new airplanes. This could be a win-win for both sides.

Let’s get the nagging question out of the way first. Wouldn’t Delta’s scope clause with its pilots prohibit the airline codesharing domestically with Silver, especially on those 70-seat ATR-72s? No. Turboprops aren’t an issue, and there is no violation of the scope clause. Moving on…

The hard part about building up Miami — besides the 800 pound gorilla with an eagle on the tail being ready to pounce on any move Delta makes — is that Miami is a really expensive airport. It costs about $20 per enplanement (CPE) to operate from Miami. That might not mean much on a long, expensive flight, but on a short hop it’s a killer. Plus, the fewer seats you have onboard, the less you can spread around your other costs. A 34-seat Saab is awful, a 46-seat ATR-42 is mildly better.

But those 70-seat ATR-72s… well, that’s an interesting airplane. That could be a very good airplane to fly into Miami. Use those planes to fly to a variety of mid-size nearby cities, and you might be able to make a go of it. It’ll certainly be cheaper than having a regional jet with about the same number of seats flying it. The ATR is a slow airplane, so it can’t go too far without driving people crazy, but Florida, the Bahamas, Cuba, and parts of some southern states are fair game.

Let’s also remember that LATAM flies to Orlando, and Delta has been historically strong there. This could be another weapon to help build up connectivity there.

I should be clear not to overstate this. This can’t be Delta’s primary vehicle to build up Florida, but it’s a nice relationship on the periphery that can help both airlines achieve their goals.

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13 comments on “Delta Should Have Bigger Plans For Its Silver Airways Codeshare

  1. nice new web layout!

    I wonder if DL considered pushing LATAM to FLL and growing there vs. MIA. It is certainly a better passenger experience and lower cost, and if the goal is to hunt in South America, the lower cost competition from B6, WN, NK is less of a big deal. Would let DL beat AA on price and build scale to take on the others domestically.

    And the “poke the bear” question — will DL invest in Silver?

    1. I agree with Cranky. MIA and FLL are not interchangeable, despite the claims of many to the contrary, for a wide variety of reasons, from proximity to Miami proper, the larger presence of international flights, the cargo operation there which outpaces FLL dramatically, and also the sheer fact that when people want to go to South Florida, they type in Miami, not Ft. Lauderdale. I say that as someone born and raised in Florida. For better or worse, Miami will always be the major international airport.

  2. I think you are right, Cranky.

    Delta’s interest isn’t just about putting its code on a few point to point routes on small turboprops, esp. to the Bahamas and its Latam investment isn’t just about putting its code on Latam’s Miami operation.

    Delta has been more successful than any other US airline as identifying growth opportunities in markets where other airlines are the dominant airline and growing to a strong #2 or better market position with average fares equal to or higher than Delta’s system, including from its major hubs like Atlanta, Detroit, Minneapolis and Salt Lake City.

    Over the past ten years, Delta has methodically built hubs or focus cities in Boston, Raleigh-Durham, Seattle and has grown its position in New York City to have the largest number of flights and carry the largest number of local passengers. With each of those projects, Delta has met key strategic goals which are unique to each of those cities and regions.

    Florida appears to be next on the list.

    Delta is actually the oldest remaining airline that still operates at Miami and it has long had a strong position in Florida – but pulled back much of its position post 9/11 to focus on its key hubs. DL still carries about 85% of the revenue of the top carriers in FLL, MCO and TPA. DL’s growth strategies have repeatedly shown DL is about revenue growth, not about trying to pass up a low fare incumbent in terms of passenger share. Delta’s strength in Florida is northbound while Latin America provides an opportunity for DL to grow its revenues southbound, a market that American dominates among legacy carriers. Delta has had more success growing its network in AA than UA strength markets. WN has cut more capacity in DL strength markets than those of any other carrier during the MAX grounding.

    Latin America is about higher average fares than the domestic system and Latin America, like Florida as a whole is growing both domestically and internationally. Florida is the biggest recipient of people fleeing high tax states in the NE – and many of those passengers have stronger loyalty to Delta than they do to low cost carriers.

    And the growth of other carriers in Florida is a strategic threat to Delta’s Atlanta hub; as other carriers start hubbing or grow their hubs in Florida it potentially weakens Delta’s dominance of the SE. Delta does successfully compete in the Central Florida to Latin America market via Atlanta but not from S. Florida. Growing Florida to Latin America is about having a holistic presence in Florida as a whole.

    Yes, Silver provides a means by which Delta could grow Florida from a point to point operation to feeding hubs for Delta and its partners. It is indeed likely that Silver is just part of Delta’s strategy to build out Florida including to but likely not only to Latin America.

    1. Another carrier establishing a hub in Florida might affect DL’s ATL hub on flights to Florida, but in general ATL is the best place to connect in the SE. CLT is too far East, BNA is too far North, IAH and DFW are too far West, MSY too far South and West, MIA, MCO, FLL, TPA are too fare South and East. Connecting in MCO unless you’re leaving from South Florida is too much back tracking. And that’s before you get into the economies of scale that DL has in ATL.

      1. Nick,
        you are right that Atlanta has the best geography for serving the SE. Remember, however, that the focus of Silver and fitting with Latam is not just on Florida but also on Latin America. Atlanta also is very well positioned to connect passengers from throughout the US to Latin America and the Caribbean but Florida serves well in that role. With the addition of terminal capacity at MCO and the likely growth of the 3 LCCs at FLL, this is the time for DL to stake out its claim on what parts of Florida it wants. Building connecting capacity in Florida, including potentially in Miami, is about strengthening DL’s position of connecting passengers on the east coast to the Caribbean and Latin America. DL lacked access to the S. Florida to Latin America and Caribbean market but any airline has to have feed in order to compete in the local market. Latam lacks the connecting capacity which Delta can help with but I am sure that Delta also wants a much larger piece of the local Florida to Caribbean and Latin America market including to markets that Latam does not serve such as in Central America.

  3. A regional partner flying a fleet of ATRs out of Miami and around Caribbean. Sounds familiAAr?

    I wonder how would this compare with American Eagle operation and AA decision to phase out the ATRs.

  4. Brett,

    I couldn’t help that no one has mentioned the odd duck in the route map above, Boston to Bar Harbor, ME.

    Any chance that the partnership with Delta might drive Silver to add routes in the Northeast, beyond the existing Boston to Bar Harbor? The existing BOS-BHB route is almost a sightseeing trip (given the lower altitudes that props fly at) up the MA/NH/ME coast, and BHB appears to be far more convenient for those visiting Acadia National Park than flying into Bangor and driving an hour from there. (Quick aside: Acadia National Park isn’t the easiest to get to, but it is WELL worth visiting.)

    Given Delta’s strength in the Northeast, the density of destinations within reasonable turboprop range of BOS, and the somewhat flipped seasonality of leisure destinations in the Northeast (fly the planes to places like Bar Harbor in the summer, then move them down to FL for the winter), from the perspective of a naive outsider this could potentially have some merit.

    1. Kilroy – While it’s possible, I don’t think there’s as much opportunity up there. There is already ample service in most markets. Delta is trying to build up Boston, but Cape Air flies most of the routes that would be of interest. That Boston to Bar Harbor one is actually a strange little beast. Silver only flew it during the summer last year. It stepped in when PenAir went away. It was crucial for the airport to have that second carrier (behind Cape Air) so it could reach the threshold needed to get big federal funding.
      https://bangordailynews.com/2019/04/11/news/hancock/after-pinch-hitting-last-year-airline-returning-to-bar-harbor-for-full-summer-season/

  5. Interesting idea. I find myself “rooting” for the remaining independent regional airlines in the US, so I’d love to see this happen. The great irony in that strategy is Silver’s current Saab fleet came from Mesaba. Mesaba retired their Saab fleet when Delta wanted out of the turboprop business and Silver gave them a home. As a former Mesaba employee, I love seeing them continue to fly.

  6. Brad, as a former XJ’er myself, I still love hearing the Saabs firing up when I fly in and out of Key West.

    It’s interesting to watch DL walk away from some of the steps they took after the merger. They wanted to be an “all-jet” carrier, hence the Saabs had to go, taking some small markets out along with the cuts. They had brought all customer contact work in-house, either mainline or via their DGS subsidiary. Delta sold off DGS last year. Now DGS employees are just contractors. Recently Delta moved to consolidate regional flying to 3 carriers. While Silver is not a full Delta Connection carrier, they are adding back what they once felt was no longer needed.

    Going into SEA against Alaska wasn’t much of a battle. They could offer more to Seattle than Alaska could. They could offer service to places Alaska could only dream of. Same with Boston against JetBlue. No matter how loyal Alaska and JetBlue flyers claim to be, they have learned that there is a lot those carriers cannot offer.

    But for all Delta has done well post merger, there will be a mistake. Buying into LATAM and taking on AA at MIA may very well be the mistake. For as dysfunctional as American seems to be right now, could an attack on a fortress hub be the kick in the rear needed to get American to find focus? AA has what, 400 flights a day at MIA? Can Delta grow fast enough to prevent Vasu and AA from giving Delta a taste of their own medicine? I can’t see any scenario where Delta is able to grow into a credible threat to AA in Miami. Not only has American moved to replace the LATAM capacity, but as the Max (eventually, hopefully?) comes back into service, they have the ability to increase capacity and outflank any move Delta could make.

    1. @Chris,
      interesting observations.
      business is not static. Strategies that work today might not make sense tomorrow. Well run businesses know when to pivot to something else.
      As for AA vs. DL in MIA, there seems to be two extremes that people talk about – DL is either going to just throw a couple domestic connecting flights to help Latam or, to the complete other extreme, they are going to go into a full-out battle with AA for dominance.
      Neither is likely to be the outcome at least for 3-5 years, unless AA falls into bankruptcy.

      DL is not and never intended to be the largest airline in Boston or Seattle in terms of capacity. As you note, DL offers something that B6 and AS can’t – which is DL’s global network – and DL does that while being smaller – currently about 1/2 the size of AS in SEA and 2/3 of the size of B6 in BOS. DL is at about 80% of AS’ SEA local market revenue which shows that DL’s larger network does attract higher value (and longer haul) passengers than AS. In BOS, DL is near 90% of B6’s local market revenue and their CEO says they expect to reach parity (100%) of B6′ local market revenue by 2020.

      The same principle applies to MIA. DL is already the #2 US carrier by revenue at MIA, just as they are at DFW, CLT, PHL and most AA hubs. The inverse is not necessarily true in Delta’s hubs. DL will add a few flights to key Latin America destinations – I believe predominantly to markets that Latam does not serve – and add a few key flights on its own metal in markets Latam already serves such as GRU and perhaps EZE and SCL.

      If AA wants to go nuclear over a dozen or so new Delta flights to Latin America at best and perhaps up to a couple dozen new domestic Delta flights plus whatever Silver adds, then the damage will be more to American, not Delta.

      Long before the Supreme Court of Chile said that American and Latam could not have a JV to/from Chile, American had dropped MIA from its list of most profitable hubs. The growth of B6,NK and WN to the Caribbean and Latin America has taken a toll on AA at MIA. Weak economies esp. in Brazil and Argentina and growth of Latin low cost carriers have reduced AA’s profits from MIA.

      Is it possible that Delta will surpass AS in SEA, B6 in BOS or AA in MIA in size? Perhaps in 5 years or more but that is far from likely anytime soon.

      DL simply wants to have a seat at the MIA-Latin America table which AA has had to itself for two decades. The Chile Supreme Court ruling simply makes it possible for DL to enter the market now w/ Latam’s help. And Latam is now in a far better position to bulk up w/ Delta to compete against AA – with which it was always a competitor because that is what you are as codeshare, but not JV, partners.

      The bigger indicator of how DL will do is to look at DL’s growth in major AA hubs such as JFK, LGA, DFW, ORD and LAX. DL has overtaken AA in many markets from those airports and, in some cases, is carrying average fares as high as or higher than AA (and UA) in markets such as LGA-ORD.

      DL was the 6th largest airline when the US industry was deregulated 40 years ago and is now the world’s largest by revenue. DL clearly has demonstrated that it can not only “move up” into markets which AA and UA previously dominated but also get revenues as high as or higher than those two in some of their top markets. AA and UA have built no new hubs and their growth now comes from flying regional jets and small narrowbody aircraft over multiple of their own hubs – such as AA’s new DFW-PWM flight. DL has also invested in a half dozen airlines around the world, more than any other airline – and formed deeper partnerships than is possible without an equity investment.

      After developing NYC, RDU, SEA and BOS, DL is apparently now shifting to Florida. Chances are very high that DL will succeed in MIA just as they have in those other new hubs

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