Blocking Middle Seats Didn’t Pay Off for Delta Last Summer

Delta

Delta loves its blocked middle seats, and it has repeatedly said that this is a strategy that’s working for the airline. The US Department of Transportation (DOT) recently released Q3 2020 numbers, and well, they say otherwise. Admittedly, Q3 was a long time ago in a pandemic world, but the numbers are pretty clear here. If we’re looking at generating revenue, Delta fell behind, United surged ahead, and American was forced to buy traffic to keep pace. I dug in to Cirium‘s data to show you exactly what’s going on.

Listening in to Delta’s recent Q4 earnings call, you might think it had found that the real key to success in this industry is selling fewer seats on airplanes. As President Glen Hauenstein put it,

And despite having meaningfully less inventory per sale given 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.

Outperformend on passenger revenue generation? What does that mean? Glen said this in response to a question by Ted Reed on the call:

Our revenue premiums have never been higher. And so, customers are valuing the Delta difference. And I think that’s how we’re looking at that is when you look at our revenue production versus our competitive set, despite having the least amount of salable capacity, our revenues have kept pace.

Really? What I see is that Delta has constricted supply so much that it’s able to squeeze out higher fares. Let’s start by looking at capacity.

Q3 Year-Over-Year Domestic Departures and Seats by Airline

Data via Cirium, assumes Delta sold only 60% of seats

In July through September, Delta operated roughly the same percent of domestic seats year-over-year as American, but just look how few seats Delta had for sale compared to the previous year. In other words, Delta had a good number of flights available but not a lot of seats to sell on them. That sounds like a recipe for being able to keep fares higher, and that is indeed what Delta did.

Here are the domestic stage-length adjusted yields over time. Yield, as a quick refresher for those who need it, is expressed as cents per mile and totals up the fares collected and divides that number by the number of miles each person flew on the airline (also known as Revenue Passenger Miles, or RPMs). Then Cirium adjusts that data to make sure it’s all assuming a standard 1,000 mile stage length so we can compare apples to apples between airlines. (Shorter average stage lengths tend to have higher yields as a rule, so it would skew otherwise.)

Stage-Length Adjusted Yield by Quarter (in cents)

Yields adjusted to 1,000 miles. Data via Cirium

Sure enough, by the time we got into the third quarter, Delta had been able to significantly increase its yield premium. This isn’t a surprise, but it’s also not useful unless you’re in a vacuum. I mean, you could sell one seat for $10,000 and your yields would be through the roof, but that’s a lot worse than selling 20 seats for $1,000. Sure, yield is down, but you make more money.

So, next we can look at the load factor, which takes those RPMs and divides by the number of miles every seat flew, whether occupied or not. That’s Available Seat Miles, or ASMs.

Load Factor by Quarter (percentages)

Data via Cirium

Naturally, nobody is happy with these kind of load factors, but United and American are far ahead of Delta just because of how many more seats they were willing to actually sell. Delta automatically said it wouldn’t sell roughly 40 percent of the seats onboard, so that ties the airline’s hands behind its back before it even starts.

When we combine the yield with the load factor, we get the real answer that matters. We have the total passenger revenue divided by ASMs (PRASM) to figure out just how much revenue is being generated per mile regardless of how many seats are full.

Stage-Length Adjusted PRASM by Quarter (in cents)

Adjusted to 1,000 miles. Data via Cirium

That is a very significant difference in PRASM. Put it this way, let’s say each airline flew a 150-seat airplane 1,000 miles. United would have generated $8,700. American would have generated $8,550. Delta would have collected only $7,350. Remember, none of this is covering costs during the pandemic. These numbers are terrible, but that’s still a lot more money in the pockets of American and United for every flight that operates.

A slight tangent from the main thesis here… it’s also notable that American and United came to that point through very different strategies. You’ll remember that in the early summer, American zoomed ahead with capacity and tried to make a play for a surge in demand that didn’t develop. With that capacity out there, American decided to fill up as much as it could by taking rock bottom fares. If you’d looked at these strategies, you’d probably choose United’s.

How Can Delta Stand Behind This?

With all this data, how is it that Delta can say this strategy is working? First, I have to note that this is only for the third quarter of 2020. Who knows, maybe a magical fairy waved a wand and in the fourth quarter things were completely different. We’ll find out when the data is released.

Ultimately, Delta’s strategy seems to be one that tries to get customers who are willing to pay more on a Delta airplane now. Then the hope is that they will somehow keep paying more in the future even after the middle seat block is gone. Then… PROFIT! That’s a big bet, and it’s not one I’d be willing to make.

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68 comments on “Blocking Middle Seats Didn’t Pay Off for Delta Last Summer

  1. Delta’s new ‘sellable capacity’ concept and.metric covers Hauenstein’s claim.

    For Delta, it’s no longer about RASM, it’s about ‘RSSM’. Revenue per Sellable Seat Mile.

  2. It would be intriguing to see this analysis on routes with direct competition (inclusive of LUV) versus those where DL is the sole option. If this statement is true, and I believe it is – “what I see is that Delta has constricted supply so much that it’s able to squeeze out higher fares” – then it implies that some passengers are willing to fly DL and only DL despite there being cheaper options available on other carriers. Perhaps that is due to the middle seat block, loyalty in hub cities, or any number of other factors. While I agree with Cranky that the strategy doesn’t hold water when the middle seat block ends (basic supply and demand would say DL fares will plummet), the analysis of routes with competition versus those without would give us a sense of DL’s pricing power relative to other airlines. It obviously doesn’t change the overall stage adjusted PRASM, but I’d give more weight to DL leadership if the fare premium they are seeing holds on competitive routes. Meanwhile, I’ll remain captive to AA here in CLT – where the higher load factors are noticeable each time I fly (4x since October).

    1. Chicago to DL hub markets are great places to compare.
      The DOT has reported 3rd quarter average fare data.
      in Chicago to Atlanta, DL had a lower reduction in average fare than American or United (10% better) and still carries the most local market revenue from Chicago to Atlanta. DL flies ORD and MDW to ATL and had lower reductions in average fare at both airports.

      From Chicago to NYC, the same is true of average fares. In fact, DL carried the most local market revenue from LGA to ORD, more than AA or UA. UA is the largest in the total market because of its dominance of EWR to ORD but DL came in as 2nd largest in local market revenue in the larger Chicago to NYC market.

      As hard as it is for some to accept, DL has a much better handle on the amount of demand that is out there right now and is not willing to either fill its planes with low yield passengers or lose market share.

      In both of the markets I highlighted – and it plays out the same across the country – DL is maintaining or gaining local market revenue while cutting costs better than its peers.

      1. Largest Market revenue is a VERY useless statistic without % of market flown by each carrier. Even more useless when talking about NYC and Chicago markets over the summer where the local flying in each market was barely there.

  3. because you didn’t consider costs. or bottom line results.

    Please read the FULL financial statement and it will be very clear that Delta’s strategy is based on matching costs and revenues to the greatest extent.

    Further, Delta reported a 25% higher yield than United (the only two that have reported so far).

    Delta has cut its losses better than other airlines.

    And United’s own cash burn forecast proves that maintaining costs in order to sell all seats doesn’t generate the best result. And we will see the same thing play out with the vast majority – if not all – airlines as they report.

    1. Delta’s costs are the direction you’re going to take, Tim?
      They’re flying the same CASM and dropping 40% of the rasm.
      Their wage costs are lower, but only because they forced 25% pay cuts on their people even though the American taxpayer provided 100% funding for those costs.

      That logic line fails muster. Next one Tim?

      1. that is not what financial statements show for DL or for UA.

        There are verifiable facts that say whether DL’s strategy is working or not.

        Given that UA is saying right now that it needs to get much more costs out – several quarters after DL took massive restructuring charges to get costs out permanently, AA and UA’s strategy of thinking they can binge on low fare passengers is not working while DL’s strategy of selectively taking passengers that matches its cost structure as well as what it knows its competitors can carry is delivering the best bottom line result.

        Revenue metrics are only one side of how businesses have to run.

        1. Except it’s exactly what the financial statements say. All the casm, only able to capture 60% of the flown rasm. You don’t get to make up your own facts and present them as real.
          For the rest of the story, reread the article above. Try imagining the story is about American. You should be able to be slightly more objective if you pretend Cranky is talking about American’s failed strategy, instead of Delta’s failed strategy.

    2. I am correct that you are a retiree of Delta? I am also a retiree of Delta but also realize the days in the 1990’s when Delta was a really well run organization have ended. Please have no doubt I would like to see Delta continue in the face of a Global Pandemic, which has presented all Global Companies not just the Airline Industry with historic challenges. Many of the previous post raise good points regarding higher fares with the blocked seats at Delta. Just maybe, Tim there might be a better way of Delta marketing itself and raising its ridership?

  4. Cranky: Perhaps you should have any articles about Delta in a separate venue so the rest of us can ignore Tim Dunn.

  5. This has to be the best corporate doublespeak quote I have ever read on this site.

    “Our revenue premiums have never been higher. And so, customers are valuing the Delta difference. And I think that’s how we’re looking at that is when you look at our revenue production versus our competitive set, despite having the least amount of salable capacity, our revenues have kept pace.”

    Just amazing how the corporate world believes it’s own “horse shit.”

    1. “We’re losing money, but we’re making it up on (lack of) volume!”

      Airlines have entire teams dedicated to maximizing revenue, and I think Cranky had a good point when he made the simplified comparison between selling 1 seat for $10k vs 20 seats @ $1k.. Again, revenue is units sold * average unit cost, and both # of seats and $/seat factor into it (literally).

      With 40% of the seats blocked, if there were infinite demand Delta would need to be getting a 67% premium per seat (1 / [1-0.4] -1) just to break even compared to having 0% of the seats blocked, all else equal. Obviously with limited demand that required revenue premium decreases, and I guess it really depends on how many flights would sell > 60% of seats at non-bargain-basement fares. Given the load factors for UA and AA from the article above, it’s tough to argue that DL isn’t leaving money on the table, even considering the impact of fares on total revenue, unless one really wants to take the stance that UA and AA flooded the market with incredibly cheap seats.

      How much are people and companies **really** willing to pay (not what they say they will pay, but what they will ACTUALLY pay, which are often very different) because of Delta’s seat blocking strategy, especialy given the higher % of demand these days from leisure travelers? Even a 20% or 25% premium would be a lot for many leisure travelers; for a family of 4 flying to the beach that would amount to several days’ of lodging costs.

      I like Delta as an airline, and so I’m not anti-DL, but rather find this whole discussion very interesting to consider. Even with a preference for DL over most other airlines, I’m not willing to pay much of a premium (more than ~5%) to fly DL, all else equal, and that premium has nothing to do with the seat-blocking policy, but that’s just me.

  6. In Tim Dunn’s defense, DL probably saved a lot on fuel by flying around empty planes all summer. Less passengers = lighter aircraft = less fuel = lower CASM = … PROFIT?

    Cranky, how did DL’s results compare to Southwest, Alaska and JetBlue?

    1. YR – Well, if we just compare Q3 2020 to Q3 2019 to make it easy…

      Alaska: Load factor dropped 38 points (to 48%), SLA Yield dropped 2.4 points (to 10.9 cents), SLA PRASM dropped 5.8 points (to 5.3 cents) Delta: Load factor dropped 46 points (to 43%), SLA Yield dropped 4.1 points (to 11.3 cents), SLA PRASM dropped 8.5 points (to 4.9 cents) JetBlue: Load factor dropped 45 points (to 41%), SLA Yield dropped 3.7 points (to 9.9 cents), SLA PRASM dropped 7.5 points (to 4.1 cents) Southwest: Load factor dropped 38 points (to 45%), SLA Yield dropped 4.4 points (to 7.8 cents), SLA PRASM dropped 6.5 points (to 3.4 cents)

    2. Fewer passengers does mean lower fuel costs, but a 33% drop in passengers (say, the middle seats on a 737) does not mean a 33% drop in fuel costs since you’re still flying the weight of the plane itself. Costs might be a few percent lower but not enough to make up for that many empty seats.

      1. Thanks Cranky!

        Jason, the comment about saving costs by flying emptier planes was mostly facetious. At the end of the day though, I feel like the story in 2020 is cost control. Nobody is getting much revenue at all, so maybe Delta (and AS and WN) made the wrong call blocking middles, but if they did better pulling costs out then that’s probably what matters. Lucky for Southwest, United and American that all their MAXs were grounded and compensated for by Boeing! Will be curious to see results after the whole industry has announced earnings.

  7. For once, one can’t really claim the others are copying Delta.
    Interesting strategies.
    I know American has gotten my business lately because they have retained connectivity.

    United seems to care less about connections (from our market to the mountain west) and Delta is a non-starter due to backtracking plus double connect.

    Circling to land back on topic, how soon will Delta drop the middle seat block?

  8. I’m just grateful to Cranky for the helpful way he explains the metric and then illustrates an example. Bravo CF!

  9. Read the title and the article. Comment section did not disappoint. Thank you Cranky! I needed a smile today.

  10. I love DL, but sadly, I don’t think this strategy will work for them. We fly frequently between STL and north Florida, with our main alternatives being Delta and Southwest. My wife and I are both doctors, so we have considerable Covid paranoia, as well as some disposable income. A couple of times during the pandemic, we paid to fly on Delta specifically because of all the blocked seats. But now we’ve been fully vaccinated… so it was back to the ol’ Southwest Companion Pass last week.

    I appreciate Delta for doing this, but like most things related to airline choice, it won’t actually buy them a lot of durable loyalty.

    1. I think Cranky is missing the longer-term strategic pictue here: I for one, appreciate Delta for blocking the middle seats, that has actually driven a lot of my decision on airline – despite their lack of F&B compared to other airlines in the premium cabin. I agree this won’t actually buy them a lot of durable loyalty, but I do think this has bought them incremental loyalty and many premium pax will remember this post-pandemic.

  11. DAL and UAL are the only two airlines that have reported their 4th quarter financials.

    UAL stock is down 6% at this hour, double the decline of any other airline. Over the past year, UAL stock is down the most of the big 4.

    Investors care about the bottom line. UAL didn’t deliver no matter how much anyone wants to argue last quarter’s revenue data. DAL has taken a balanced approach to matching new revenue and with new costs. UAL’s yield was within a couple percent of DAL’s for the 3rd quarter but 25% below DAL’s for the 4th quarter.

    We’ll see as each new carrier reports…

    The industry had the expectation that government money would end on Sept 30. DAL took the steps to get its costs down while protecting its revenue in its most important markets. It didn’t try to fly a bunch of new routes or increase its market share in thousands of connecting markets and lose an extra billion in the process.

    btw, Delta pilots are saying the company plans to reinstate a bunch of the “parked pilots” to flying by the summer.

  12. My primary comment on this topic is to remind all of us that these extreme measures are temporary, or at least most of us hope so. I also feel the need to reiterate that we only have public information. We don’t have the volumes of internal data that are available to airline management teams. As Mark Twain once observed, “There are three kinds of lies – lies, damned lies, and statistics.”

    1. Airlines do release enormous amounts of data to the DOT – unlike what is required of any other industry.

      Publicly traded airlines release financial information that details quite clearly the operations of the company.

      Besides, CF did use the same DOT O&D data I did. He just didn’t apply it to specific markets – such as DL’s major hubs and focus cities – to show why DL’s strategy works or does not.

      Good ole RDU works well to prove the point. AAL jumped to the largest carrier ahead of DAL but did so by discounting much more aggressively and at levels still beyond what AA can sustain – since they have now cut large amounts of capacity from RDU for the 1st quarter.

      Same for AUS.

      DL knows what it and other itself and other airlines can price at and it knows that across its system.

      DL has higher market share in its own hubs and also has a stronger balance sheet than AAL and UAL – and more staying power (cash to cash burn) than AAL UAL and JBLU.

      DL didn’t have to rush in and add capacity to hold onto share or try to steal it from other carriers in order to justify keeping costs in its system

      Revenue statistics aren’t the only thing that matters and UAL proved that with its earnings release and investor/analyst call today.

      1. You can write all the words you want, but no matter how much you write, the public data are still not the same as the internal proprietary data. A line from the old BBC/PBS show “I Claudius” comes to mind. I’ll paraphrase: “Quality of data is more important than quantity.”

        P.S. When did I write about Delta adding capacity?

      2. “Good ole RDU works well to prove the point. AAL jumped to the largest carrier ahead of DAL but did so by discounting much more aggressively and at levels still beyond what AA can sustain – since they have now cut large amounts of capacity from RDU for the 1st quarter.

        Same for AUS.”

        Tim, i’m proud of you. After months of incorrectly saying “Delta lost no market share in its hubs or focus cities”… you’ve finally admitted they did, in, at least, RDU & AUS. Good for you. Hopefully, this is a new fresh start of you being honest with the facts. If Delta wants to win the RDU market share game in January & February, I’m sure they’re more than welcome to it.

        1. Jake,
          I use whatever the data says and draw my conclusions from it. and my comments have been about capacity share anyway. But I am happy to admit I am wrong – if and when I am.

          If a carrier that gained passenger share pulls out of markets (and that is precisely what happened esp. with AAL and LUV in the summer and following), then it really is no consolation prize that they had a higher passenger share for a couple of months.

          The world will never remember that AA became the largest airline at RDU for one quarter in 2020. It just doesn’t matter. the statistic does highlight that AA dumped a bunch of capacity into RDU, sold it at much lower fares, and gained share in neutral markets (primarily connections – not markets where it competes directly with DL). In fact, AA turned around and reduced its schedule from RDU to NYC and LAX and ORD (which are all part of broader initiatives) so they couldn’t have sustained what they gained anyway.

          Same thing played out in AUS-LAX which just about every airline is flying.

          As for the comment about not blocking seats working (which is a mixture of CF’s reading of DL’s 4th quarter earnings call transcript and 3rd quarter data), it is very obvious that if 4th quarter revenue for DL and UA were compared side by side, DL reported higher passenger and total revenue (which they did before covid but by a lesser degree) with lower costs and with lower losses.

          I have flown multiple times and there is a difference in the make up of the passengers that are flying DL vs. what is on other airlines. DL says it is carrying a higher percentage of business traffic than ever and that most certainly appears to be true. For those that do not know, airlines exchange yield and traffic data so they can compare themselves to the industry but not airline to airline until earnings reports come out.) DL got 25% more revenue per passenger mile than UA. DL is blocking somewhere around 30-35% of seats. It is making up for most of the lost revenue from seat blocking by getting higher yields.

          These statistics are not made up and they are not secretly locked up where only a few can see them – nor are they proprietary. it takes time to see market level revenue data but macro-level data is out regularly and airlines are using them to make their decisions.

          It is also worth noting that Biden’s decisions re: international testing and quarantine will send a chilling impact on international travel demand. KLM has already cancelled its longhaul schedule.

          Airlines like UA that have large international footprints and were hoping to get cash burn down will see it go back up, the 1st quarter is not going to be pretty.

          Since nearly every airline has some near international flights, this will impact all of the industry.

          Let’s see what AA and WN report but it is doubtful that anyone will do any better than DL because the strategy of keeping seats in the market has not worked because there is not enough demand to come close to covering costs. Meanwhile, DL has done a far better job of getting costs out (DL and UA cut costs the most in the 3rd quarter, DL beat UA again in the 4th quarter); AA and WN did not cut costs much at all. and, btw, CASM is WAY UP across the industry- it is not flat. Taking the same amount of costs and getting much less traffic makes for a much higher CASM).

          1. You know, I’m not the one going around on nearly every Cranky post preaching your weird mantra that Delta has lost no capacity share in its hubs or focus cities, for one quarter or four. It wasn’t true when you said it multiple times if only due to seat blocking and you’ve just said it wasn’t true on overall flights or capacity either at RDU & AUS.

            I don’t really care who’s bigger in what quarter. You keep making up statistics about market share, capacity share, and most everything else you bring up then claim it as fact and go off on a 6 paragraph nonsensical rant off a made up fact.

          2. Anyone who’s taken Accounting 101 knows there’s a difference between internal accounting and GAAP, etc.

  13. Breaking news for the Crankster…

    From Aviator Daily News today: “Italy would have to drop the 75-year-old Alitalia brand if it wants the European Commission to approve plans to relaunch the airline.”

    Oh, horrors! You can’t let those Euro nuts do that. SAVE THE ALITALIA NAME! (It may be a whipping boy, but it’s OUR whipping boy…right, Crankster?)

      1. Don’t worry, Cranky, I’m sure you’ll always have Aerolineas Argentinas too, which is usually your #2 whipping boy… Makes sense, as the majority of Argentina’s heritage (from a “bloodline” perspective of going backwards to descendants, not from a cultural perspective) can be traced back to Italy.

  14. There’s a lot of talk about what metrics should be looked at, how individual markets look, etc. But I think that’s all noise.

    What we are looking at here is whether the broad strategy to block middle seats made sense or not. Costs mean absolutely nothing. Delta’s maginal cost of selling those seats is almost zero. In fact, it could have potentially saved money by opening those seats and flying fewer flights if cost reduction was the main concern. Any cost efforts it put into place are independent of this and should not be considered.

    Regarding specific routes, I have little doubt that we can cherry pick routes as others have done in the comments to make it look like the strategy is somehow succeeding. That doesn’t give the big picture look. Do I care if Chicago – New York is doing well? No I don’t. Delta could have carved that out if it wanted to do so.

    nc_road_warrior – During the initial pull for this post, I looked at individual cities. There was some variation, but the basic trend is similar. Take Indianapolis, for example. Delta has a 12.8 cent yield while United was at 11.9 and American at 10.6. American filled 60% of seats with United at 58% and Delta at 42%. So the united revenue? United had 7 cent PRASM with American at 6.4 and Delta at 5.3. So it does move around by city, but in the end it’s the big picture number that matters.

    1. Brett,
      I’m glad you weighed in.
      let’s talk directly to each other rather than around each other, shall we?
      While some people argue that statistics are, or can be, nothing but lies, they all matter in the appropriate context.
      You based your article on 3rd quarter DOT data which came out recently – but not yesterday. In fact, it was out before Delta reported its 4th quarter earnings. You managed to reference comments in DL’s 4th quarter earnings call but didn’t include the data from that call and the comparison to UA, which dropped its earnings release just hours before you dropped your article.
      If you had either refrained from including statements from DL’s 4th quarter earnings call OR waited to include at least UA and maybe AA and WN’s (and the rest of the industry) 4th quarter revenue numbers, then your conclusions would have been more coherent. Mixing and matching data from different quarters does not represent the highest quality of analysis which I believe, correction I know, you are capable of doing.
      You run a business. You know the difference between costs and revenue and how they play in your own business. I am baffled how you think that only revenue metrics matter and the rest (including cost) is noise.
      The owners of a business – in this case the stockholders of an airline – don’t care about one side of the operating statement to the exclusion of the other. The bottom line matters and you can’t “win” at the bottom line if either costs or revenues are not where they need to be. UA’s own statements show that they have to get costs out NOW.
      Airlines have used different strategies during this pandemic and that is true with Delta and with United and with every other airline. Statistics reflect a period in time and the reason why some people hate them is because time periods are specifically used to make statements that bias the conclusion.
      The fact that Delta got 25% higher yield than United at lower costs does matter and it very much validates that Delta’s revenue strategy is producing much stronger financial results. And the yield gap between DL and UA is widening. Picking out RASM and holding it out as the measure of success to the exclusion of the bottom line is an argument you can win with a handful of people – but certainly not real-world investors that actually buy stock in companies like UAL. That is why UAL’s stock tanked as much as it did today.
      We are nowhere near the recovery of the airline industry or any company in it. To boldly proclaim the failure of any strategy when you specifically exclude data that shows how it is working does not reflect the high quality analysis that must be done not just on a single day but over a period of time on a particular strategy.
      Those that want to compare the size of DL and UA’s losses in 2020 and proclaim how well UA did are those that fail to note the huge restructuring charges that DL took – including the retirement of hundreds of aircraft (even if they physically won’t be removed from service for 4 more years) as well as the industry’s largest early retirement programs.
      DL got rid of its entire 777 fleet – which was obviously smaller – but UA still has scores of them; the 777-200/ER is the most cost INEFFICIENT aircraft in the US widebody fleet now. Kirby isn’t keeping the 777s because he expects a return of demand but because those aircraft are encumbered with debt and UA can’t possibly pay off that debt and replace them; they will be operating with the most cost-inefficient widebody fleet in the world. The 777 fleet is just one example. The RJ fleet is the same thing. DL took its restructuring charges in part to get rid of the most expensive aircraft in its fleet.
      Ironically, some of those that want to argue about the size of DL’s losses in 2020 want to argue against an apples to apples comparison of cash burn – because on that basis DL is clearly far ahead of not just UA but every other US airline.
      As hard as it is for some to accept, maybe you included, UA has ALWAYS had a harder time getting costs out than Delta. So has American. Delta’s abililty to manage costs has always been much more like a low cost carrier than a legacy.
      I appreciate that you are taking on financial discussions. Just know that people do know the data that you are trying to represent and, ultimately real investors know the differences. If what you or anyone says doesn’t square with what the market says, you have convinced no one that really matters.

      respectfully

      1. It’s ironic that you talk to Brett about using facts when you have yet to cite a single one to prove any of your dogma, even here where you talk about places where stats are derived but don’t use a single one. Why? Because delta does have a PRASM deficit. Their yield is great but that’s a useless thing to have great yield on fewer seats. You try to obscure the obvious with a discussion on cost but then seem to think 40% of casm magically disappears when delta only sells 60% of seats.

        Others reply to you with actual facts: delta’s RASM vs competitors. Delta’s very high debt load. Delta screwing over their people with a forced 25% pay cut. And you obscure and try to word a reply, never with any actual facts or data.

        You use dogmatic statements with zero cited stats anywhere. You talk about delta’s unchanged capacity share in hubs and focus cities and ignore data on the topic then accidentally refute yourself in other comments.

        Again, I’d suggest you copy/paste the entire article on to Microsoft Word, then do a replace function with Delta > American.
        That should help you with some desperately needed objectivity given your weird obsession with hating American.

      2. You seem to be remarkably confused about the content of this post, so let me try to clarify.

        > I appreciate that you are taking on financial discussions. Just know that people do know the data that you are trying to represent and, > ultimately real investors know the differences. If what you or anyone says doesn’t square with what the market says, you have convinced > no one that really matters.

        This is not a broad financial discussion. This is a revenue discussion, and that is squarely in the wheelhouse of what I regularly cover. If I convince nobody, well, then that’s their problem if they don’t want to look at the numbers and get to the right conclusion. Frankly, that is not my concern in any way. You act like my success is somehow based upon investors deciding that what I write is correct. That’s laughable. Of course, I am always looking for reasons to rethink, update, or alter my analyses to make sure they are correct, but I haven’t seen anything from you that gets remotely close to achieving that.

        > You based your article on 3rd quarter DOT data which came out recently – but not yesterday.
        > In fact, it was out before Delta reported its 4th quarter earnings.
        > You managed to reference comments in DL’s 4th quarter earnings call but didn’t include the data from that call and the comparison to UA, > which dropped its earnings release just hours before you dropped your article.

        Correct. This was going to go live before, but as you may not have realized (and possibly did incorrect analysis if you did not), SkyWest inaccurately reported T100 data for September. So until that was fixed, I couldn’t in good conscience post an analysis. That was fixed in Cirium data over the weekend. Referencing comments in Q4 data really doesn’t matter. You seem to be looking for a technicality, but Delta has been saying the same thing all along. Your feverish attempts to discredit me just don’t hold water.

        I have no interest in using the numbers an airline provides in its earnings release. It doesn’t break it out geographically, or at least not how I want it broken out geographically, and I’m ignoring international since that skews it away from the point. Also, I don’t want to play with different metrics of PRASM vs TRASM, etc. I would much rather use apples to apples numbers, and that’s why I stick with DOT data. I will look again at Q4 once that comes out.

        > You run a business. You know the difference between costs and revenue and how they play in your own business.
        > I am baffled how you think that only revenue metrics matter and the rest (including cost) is noise.

        I’m afraid there are only so many ways I can say the same thing. Costs matter in general. Thanks for lecturing me on that point. Costs DO NOT matter for this analysis in any way. We are talking about the impact of blocking middle seats. Costs of carrying an extra person are a rounding error. The question is… did blocking seats give a revenue benefit and the answer is that it certainly helped fares but it undoubtedly hurt total revenue generation. Costs are not in that equation.

        If you want to continue to harp on costs to distract from the fact that Delta left revenue on the table, go ahead, but it’s irrelevant to this specific question.

        > We are nowhere near the recovery of the airline industry or any company in it. To boldly proclaim the failure of any strategy when you specifically exclude data that > shows how it is working does not reflect the high quality analysis that must be done not just on a single day but over a period of time on a particular strategy.

        Many have noted that your condescension has frustrated them in the comments section, and I share that view here. In the post, I clearly say it didn’t work last summer, and I will be looking to see if there was a magical change in Q4 that would lead me to feel otherwise. Again, your efforts to discredit this analysis fall short.

        I have always enjoyed reading through the comments section and participating when warranted over the last 15 years this blog has been in existence. But I can say without question that the last several months have been increasingly joyless. The bickering has ramped up and many comments have become long-winded and tortured. I often don’t even bother reading them. I am not happy about this, and changes will be coming since I’ve been forced to give up on any meaningful change happening without my intervention.

        1. Brett et al,
          You can argue that costs don’t matter because they don’t come to the conclusion you want but DL clearly did consider costs in their decision to block seats.
          I get the timeline you have to drop an article – but you managed to include quotes from DL’s 4th quarter conference call but not the data from their earnings release.
          You don’t trust the data that airlines report to the DOT but you want to use the O&D level data that they report to the DOT?
          You didn’t report RASM data by region in this article. Every piece of data you reported is at the system level.

          UAL led off its 3rd quarter earnings release w/ a proclamation about how they led the industry in RASM production…. not so much this quarter. When their yield was 25% lower this quarter rather than within a couple percent of DL last quarter, that is a very material difference – and it significantly challenges the notion Delta’s seat blocking didn’t work. In fact, all of the data shows that DL’s revenue advantage gained significantly in the 4th quarter – which makes it all the more interestingly that you would now proclaim that seat blocking for the 3rd quarter didn’t work for revenue reasons.

          United Airlines today is worth 51% of what Delta is as a company. There are valid reasons for that. Dismissing data that doesn’t fit your narrative may help you come to the conclusions you want but it doesn’t present an accurate analysis.

          UAL has had the same opportunity to rebuild its network. They chose to sell 100% of their seats. They serve a very high percentage of the same O&Ds.

          Stock price and the sum total of them matter.

          And, I do hope that you follow up when covid is complete and when all of the data – O&D and financial is released – to see if you can still say that DL’s seat blocking strategy didn’t work.

          1. of course costs matter, Tim.

            But 1. It has nothing to do with Delta leaving total revenue on the table. The plane was flying regardless. The question is then: did Delta maximize revenue from their policy as they seem to be insinuating on their earnings calls? The answer from Cranky’s analysis seems to be: “No, delta did not maximize revenue and they got less revenue than their competitors for the same average flight”.

            And 2. You just have yet to provide ANY data whatsoever that costs were lowered directly as a result of blocking the middle seat. What CASM came out directly related to blocking the middle seat? Crew costs? No. Actually, those costs increased because you’re flying around more planes to fly the same number of passengers. And Delta would need more crew not on leaves or exiting the company to do the extra flying required — another higher cost for Delta vs competitors. I’ve flown on Delta multiple times since the pandemic and they still had the full crew complement on a 737 or airbus aircraft (4) domestically. Maintenance CASM? No. in fact, that would go up with more planes flying to carry the same number of pax. Those costs didn’t go down.
            The fuel component of casm would go down with less weight… but VERY little. What other CASM costs would go down directly as a result of blocking the middle seats (the entire point of this article)?

            1. Jeff,
              I’ll say this and then leave it with CF.
              You need only look at DAL’s financial statements to see what costs DAL did not incur in order to not have to sell aircraft to 100%.
              The actual financial statements are what determines how the bottom line is reported. Airlines (except for Frontier) are publicly traded companies and meet SEC requirements.

              and the real evidence that UAL is not realizing that it needs to get costs out that DAL did is UAL’s decision to start offering richer packages than they offered before.

              DAL offered the most expensive set of HR separation and aircraft retirement packages and DL got its costs down, something that UA is now realizing it now has to do.
              Given that UAL is burning cash at a much faster rate than DAL – and they will not be alone when other carriers report – it is clear that solely focusing on revenue cannot and never was a viable strategy in the midst of a crisis that has decimated demand.

              And even if the determination of success for a strategy was the 3rd quarter, 4th quarter data shows that can’t be claimed any more given that DAL got 25% more revenue per SOLD seat mile than UAL and the PRASM gap fell to just 6% – far less than what would have been expected given DL did not sell 1/3 of its seats.

              Next week with AAL and LUV’s reports should make it pretty clear whether DAL really did get a revenue premium – which is the comment CF cited from DAL’s 4th quarter earnings call so is not just about 3rd quarter data.

            2. Thanks for clarifying, Tim.

              You can’t answer the simplest question about casm. Got it.

              If you want to bring up costs as they relate to middle seat blocking, try learning about costs impacted by middle seat blocking.

            3. Jake,
              there are no costs associated with specific seats. not for Delta, not for United, not for anyone.

              Carriers incur system costs and allocate them how they choose.

              You can look up the data (I want you to do the research rather than taking my word), Delta had about $1 billion less in operating costs than United.

              and personnel costs were a big part of that. As I have noted before, DL cut personnel costs by more than 30% in the 3rd quarter, UA was second best in the industry with a 26 or 27% reduction. Both did above average jobs of cutting costs. In the 4th quarter, which was when airlines were SUPPOSED to have been w/o government aid – DL just got all system costs out better than UA. Again, only these two have reported 4th quarter financials but the same trend was true in the 3rd quarter.

              DL’s seat blocking strategy was never just about trying to get the best revenue figure. It was first about creating extra space onboard which much of the industry did in the first few months of the pandemic. DL said that its revenue premium would accelerate as it became the only one of the big 4 airlines left that was still blocking seats. That has been true.
              DL also managed to get costs out of their system that are related to passenger volume and not just number of flights operated.

              I would encourage you, now that CF has launched the topic during the earnings season, to compare DL and UA’s earnings statements side by side and then at least have the big 4 up side by side as AA and WN report next week.

              over to CF to add, subtract, or close the discussion

            4. Again… you don’t even know what casm is and don’t bother responding to a basic question about how delta has gotten out of ANY Casm with its middle seat blocking policy despite spending all day trying to write about Delta’s cost efforts as they relate to the middle seat blocking policy.

              Until you learn about CASM… having a conversation with you about “costs associated with specific seats” is a futile discussion (like any discussion you’re in, really). Yes, they’re sunk costs but real costs once the airplane is flying and delta has chosen to only provide a revenue side for those real costs with 60% of inventory. That leads us to the entire conversation about revenue left on the table and maximizing revenue that Cranky wrote about above.

              Before the plane takes off, Delta is choosing higher CASM (cost per available seat mile since this seems to be a difficult topic for you), as mentioned above, by needing to fly more planes due to limited capacity on existing aircraft.

              I’ll let you learn about how CASM works (I want you to do the research since this entire article is about maximizing revenue once the plane is in the air). It’s not a tough topic.

            5. Jake,
              again, I would suggest you read the actual financial statements from both DAL and UAL because they are available now and then from AAL and other carriers as they become available.

              DAL did not choose higher CASM. UAL’s CASM was not only much higher than DAL’s but also much higher than what UAL reported a year ago.

              Based on their 4th quarter financial statements, DAL reported a 4th quarter CASM ex (without special charges, 3rd party business, fuel and profit sharing) of 12.57 cents/mile which was up 8% compared to one year ago while UAL reported the same metric at 16.28 which was up 54.6% on a year over year basis.

            6. Tim, Again, since you’ve been writing about the cost savings of Delta’s middle seat move this entire comments section, why don’t you explain any of the cost savings from delta as they relate to the middle seat. How was Delta’s casm better as a result of middle seat blocking? It’s a pretty simple question.

              Stop your usual misdirection by bringing up United. You know as well as anyone that comparing absolute casm isn’t useful. And, if you really want to compare against United, then you’ll need to start with Delta losing $5B more in the same year than United. I’m sure you’ll bring up fleet charges, but that’s, again, a direct result of Delta’s past fleet strategy and they finally had to pay for it all at once.

            7. Jake,
              I can only present the facts to you. There are no costs associated with any specific seats on any aircraft. Delta got billions of dollars of costs out of its network, reported a whopping 30% unit cost advantage over UAL in the 4th quarter AND a 27% unit cost advantage. DAL got costs out relative to the size of the operation they are operating now – which means some costs will come back (such as employees) when demand begins to return – but a large portion of costs are out of DAL’s system for the long term.

              If you don’t want to believe that DAL’s strategy did far more to put its balance back on a long-term stable footing, then I can’t and won’t push you.

              But given that UAL management didn’t tout its RASM advantage in this quarter’s earnings call like it did in the 3rd quarter but instead said they would get $2 billion in costs out within a couple years (an enormous 10% of their 2020 operating costs), then UAL management themselves know full well that their strategy didn’t work – and Wall Street saw it too – which completely explains why UAL’s stock tanked when it reported its 4th quarter results.

              A cost and revenue advantage of nearly the same magnitude is an enormous mountain to overcome. And Kirby didn’t try to sugarcoat the effort UAL will have to exert to TRY to overcome the advantages DAL has calling 2021 a year of transition to recovery. Not recovery but transition to recovery. Came right on the top of UAL’s earnings release – just like their gloating about their RASM premium did 3 months ago.

  15. Here’s a good summary stat that may give Tim a bit of heartburn:

    Delta 2020 total loss = $12.39 billion
    United 2020 total loss = $7.1 billion

    Who did a better job managing through the pandemic?

  16. It seems like you are missing the impact of load factor in your overall analysis. If average load factor is say 60% for DL, then blocking the middle seat is irrelevant overall. In addition if DL’s load factor Is higher than AA/UA, then this could be the reason why DL is claiming they are outpacing competitors on the revenue front.

    1. > If average load factor is say 60% for DL, then blocking the middle seat is irrelevant overall.

      Not quite true. There are peak and non-peak travel times. To get to a 60% average, you need some flights at 80% to balance out the ones at 40%. If you hard cap at 60-70%, you can’t have the high load-factor flights at peak times to balance out the low ones. That’s what AA and UA can do, and it shows up in their higher stats.

      1. Exactly.

        To use an extreme example, let’s take a plane that has exactly 100 seats and assume that without any seat blocking half the flights would go out 20% full, and the other half 100% full.

        Average load factor is 60%, so without any seat blocking, a max of 100 seats could be sold, but an average of 60 seats would be sold (20 seats sold on 1/2 the flights, 100 seats sold on 1/2 the flights).

        With seat blocking restricting sales to 60% of total plane capacity, a maximum of 60 seats can be sold. Half the flights would sell 20 seats, but the other half would sell only 60 seats (not 100), for an average of 40 seats sold per flight. In this example, the airline that blocked seats could have sold 50% more seats (from 40 to 60) had they not done so.

        Obviously over the course of a few weeks or more plane size and route frequency could be adjusted, with some flights cancelled etc, but those are imperfect solutions, especially given the uncertain and volatile demand, the finite number of aircraft options, the reduced frequency on many routes these days, and other network constraints and scheduling constraints (e.g., DL’s pilot shortages over the holidays).

        The point is that Delta’s seat blocking costs them a LOT of flexibility from a network & revenue management side, and likely costs them some revenue as well. I’m not trying to pick on Delta, but I find this a very fascinating topic, and I’d love to see their internal numbers on the topic (or see a HBS article / study on this topic 3 or 5 years from now)…. Perhaps Delta knows this is costing them money but is really doing this for marketing reasons, or perhaps they have corporate contracts that require it, or other information/data that we don’t have. Either way, it’s a fun topic to watch and discuss.

  17. Just a few more datapoints that have to be considered when assessing whether Delta’s seat blocking strategy works.
    First, again, the article uses 3rd quarter data (because that is the most recent the DOT has provided) and yet 4th quarter financial data does speak to the question of seat blocking at a high level.
    UA did generate higher RASM and PRASM for the 4th quarter than DL (again the only two airlines that have reported) but UA’s PRASM was only 6% higher – which is not really that significant considering that DL was blocking about 1/3 of its seats.
    Second, UA reported a load factor of 55.6 compared to DL’s 42% so UA couldn’t fill its seats up to DL’s load factor cap. In fact, just as last quarter, DL sold a higher percentage of its SELLABLE seats than UA.
    I have said all along that DL has used its LF caps as both a marketing tool (to create the perception of a safer cabin but also to give more space that few would decide isn’t worth it) but also as a revenue management tool – to have to manage less seats it knew it could not sell at all, let alone at deep discounts.
    And the biggest factor is that it costs money to produce any product or service. Delta got more costs out (which it needed to do long-term) and also in the short term – because government help did not and will not cover all costs above revenue.
    DL, like AA and UA, has used widebodies on its domestic system because there are few uses for them internationally. A 290 seat A330 becomes a 757 or A321 sized aircraft with seat blocking. And it allows DL (just like AA and UA) to keep its widebodies and their pilots flying.
    Markets such as Chicago to NY and to Atlanta are relevant because they are some of the few which all of the big 4 serve. Feel free to throw in large markets that are served by all 4 and those markets can be compared. Of course, Chicago and NY have been harder hit by demand reduction than the country as a whole but it has hit all airlines equally. If the data shows that one airline gets better revenue in a market that all serve, then you have to pause and question whether your conclusion is accurate.
    If the conclusion had been “based on revenue data we have up until the 3rd quarter, seat blocking didn’t work,” then the answer might have been more clear.
    But the airline industry didn’t stop reporting data in the 3rd quarter and revenue isn’t the only factor that determines profitability.
    It doesn’t really matter if anyone agrees whether seat blocking worked or not for DL on an aviation social media forum. The markets and the investors of airlines matter. They did not like UA’s inability to provide a stronger outlook and stronger results than what DL provided just a few days earlier.

    1. Tim,
      Even you know saying “the stock price went up after Delta’s call and went down after United’s call” make zero sense when it comes to anything related to earnings data and the analysis Cranky did in this article.
      1. Delta’s stock went down yesterday too. It was an overall market industry trend. Perhaps investors read Cranky’s article and realized how ‘corporate speak’ Delta was really being on their call. ;)

      2. United doesn’t have anywhere near the domestic network of Delta and American. Analysts hoped to hear something that would mitigate that from United and didn’t get that from them. Instead, United was telling investors in the Q&A section that they’ll have a unique advantage internationally when that comes back. Of course that’s not what investors want to hear right after a fresh international quarantine announcement and extreme uncertainty in the international travel market. United’s domestic buildup of denver, in particular, was probably running about 2-3 years behind where United needed it for a domestic recovery. Even with their much heavier international presence and fleet, United still was better than delta on FY20 losses.

      None of that changes that delta got less total revenue per flight vs aa/ua in 3q based on data, lower rasm vs United in 4q, much lower rasm vs aa and UA in 3q, hasn’t met their cash burn goals for the quarter, Lost ~$5B more in FY20 than United (and per you, because they retired a dozen 777 and CR2s?; you can act like the write downs are the only reason the difference is so high, but the write down of useless and old aircraft is a direct result of delta’s fleet planning strategy and holding around industry airplane rejects like the 77L instead of updating their fleet like AA and UA have done over the last few years), and reached AA-level debt levels while, among many things, financing airport debt in airports that likely won’t be profitable for them during the recovery.

      1. Great last paragraph Jake. Summarized a lot of items I’ve had in the back of my mind. And I’ve definitely wondered about the debt from all Delta’s airport investments the last few years, whether they’re on the hook for it directly or indirectly. That would be an interesting analysis if the data is available somewhere – for all the big airlines. I suspect flying will come back but profits may not because of fewer business travelers and the simple fact of too many seats chasing too few fliers. Debt burdens on fancy new terminals may be a very unpleasant cost anchor for quite a while…

  18. I’m an Avid AVGeek, love to fly…unfortunately AA is my primary, been elite for years. That being said, I’m rather floored that in this environment the focus would be on financials. Of course the financials will suck, but I cannot possibly comprehend, that Delta is being blamed for even attempting to do something to benefit the public health of it’s passengers, at the cost of it’s own revenue. So it put a spin on how well it did financially…and yeah, it may suck for a few quarters or years…but the general public will remember this, and Delta is already ahead in public perception as a result (plus other ways it sets the path unlike AA and UA). Trust me, if I didn’t hate ATL so much, I would have done a perma switch to Delta years ago.

  19. I think you are proving the point here that even though “DL truly cares about the people and their health” you are not willing to move your “loyalty” over. So how effective is their deep compassion, really? CF discusses the industry from the RM point of view. Can’t say I’ve ever seen an article about what type of seat is on this/that plane or the brand of champagne being served. Can go over to TPG if you want the hard-hitting info like that. No one is blaming DL for anything. CF is simply showing that their bet, at least through the data he currently has access too, hasn’t been a profitable bet. Might people choose to book DL in the future due to their truly heroic stance, maybe. But, I think you are showing that in the end, location and price is what determines who you fly, primarily.

    1. Exactly, and Biggs’ response is just one example of a much larger happening. People can talk about brand perception all they want; until they book tickets, talk is cheap.

      We keep hearing about how much people love having the middle seat blocked- of course, they do! What sane human being wouldn’t like that? Neither of those translates into what an earlier poster termed “durable loyalty.”

      IMO, the real story is the huge cleaning effort going on behind the scenes. I know every carrier is doing this–and I won’t pretend to be unbiased here– but I truly feel like DL is the leader here.

      I wish the C-Suite would talk that up more.

      As for costs, DL is leaving a lot on the table at the station level. They’ve had a chance to insource a lot of work from vendors. To date, not a whole lot had been done. And what has been brought back in-house has been spotty; wheelchair service here, overnight cleaning there, etc. This is a chance to save 10 of 1000’s of dollars annually at even the smallest of outstations. Now multiply that across the system. Not massive in the grand scheme of things, but every bit helps, and that’s not even touching on offsetting fixed costs, employee productivity, or the “good news story” of finding ways to keep employees on the payroll.

      1. Well, I think this can be said for people that were offered TDY’s into ACS positions, mainly flight attendants.
        In-flight was overstaffed, and Delta offered TDY positions up to a year to keep some flight attendants employed. Although it was a voluntary basis for anyone that offered to make the switch, I think it is an innovative direction towards keeping employees on the book. In some outstations, it simply may be cheaper to keep outsourcing costs. Wages can have a direct impact to the bottom line, and if the wages of an outsourced company is less than that of an actual employee, I think it becomes clear to not fully insource more positions, especially during busy times (pandemic busy).

  20. A couple thoughts:

    1) I would never consider flying anyone other than Delta through the pandemic. I don’t like the idea of sitting shoulder to shoulder with anyone in the middle of a pandemic. This is just asking to get sick. But, for the most part, people flying these days don’t think COVID is real or a big issue. So, safety is not a concern.

    2) It’s just more proof that most of the population only cares about price when flying. We are willing to give up all creature comforts to save five bucks on airfare.

    1. I mean… all the scientific studies say you’re no more likely to get sick with an open middle seat or not, but sure… live your dream.

      1. Except that you’re wrong. Here’s a study from MIT that states you are more likely to get get sick with all seats filled than if the middles were left open. It’s pretty obvious – the closer you are to others, the more likely you are to catch it. This is why the only time I flew in the pandemic, I made sure to have the entire row to myself and I will not fly again until I get the vaccine.

        https://mitsloan.mit.edu/ideas-made-to-matter/study-empty-middle-seats-make-flying-safer-during-covid-19

        1. To be clear, that wasn’t an MIT study. It was reporting about an ongoing study on the topic from a journalist who’s credentials include “Prior to MIT Sloan, Sara was a reporter and editor at the Vineyard Gazette on Martha’s Vineyard. She has written for The Boston Globe and Martha’s Vineyard Magazine, among other publications. ”

          Two months after this article you cite, United & DoD did a study where they found your chance of contracting COVID on a fully loaded flight was 0.003%. It’s an interesting article you may care to read. Cranky did an interesting summary of it shortly after publication: https://crankyflier.com/2020/10/20/quantifying-the-incredibly-unlikely-transmission-of-covid-on-airplanes/

          But let’s use the stats in that article you cite: the difference in the two scenarios is 0.02% vs 0.01% chance of catching Covid on the airplane. If you base anything in your life, especially financial decisions, over a 0.01% probability, I wish you the best in all of life, you must live quite the sheltered and secluded life.

          I suppose after seeing your cited data and blocking middle seats for ~9 months, Southwest, Alaska, JetBlue, and others all of a sudden decided “you know what, lives don’t matter; let’s start selling the middle seat”. No, of course not. because there’s no meaningful statistical difference.

  21. This article is bizarrely agnostic to the notion of what’s safest for the flying public. Reads like it was written by a sociopath. I guess when you have a hammer it all looks like nails. Re-assess your life goals.

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