Delta Spends Investor Day Looking Back, Reveals Little Going Forward

‘Tis the season for airline investor days, and Delta kicked things off with a star-studded spectacle this week. Ok, it wasn’t a spectacle, nor was it star-studded, though avgeeks should consider President Glen Hauenstein a star. Anyway, I digress. This year, Delta went with the theme “Differentiated and Durable,” which I think refers to the airline’s general positioning and was not just a description of CEO Ed Bastian’s fancy sneakers.

The whole affair seemed rather backwards-looking, talking about how Delta got to where it is today and how it built itself a defensible position. There wasn’t any real news to break, despite heavy hints previously that we might learn about a Basic Business Class option. Instead, future talk was limited to broad strokes about evolutionary plans.

So what did the airline say? Let’s get into it. You can follow along in the airline’s presentation.

The “differentiated” part of the story goes back to when Delta decided to get away from the commodity business and become a premium airline 15+ years ago. It has unquestionably been very successful in that regard, and it is very happy with its premium focus.

How successful has the premium move been? The easiest number to point at is domestic First Class. Glen explained that in the last 15 years, domestic First Class load factor has remained consistent at 92 percent. But 15 years ago, only 6 percent of seats were filled with paid domestic First Class tickets while another 6 percent came from international premium cabin travelers on domestic connections. The rest were upgraded. Now, upgrades only account for 12 percent. It has flipped.

Delta — and the rest of the industry — learned that pricing domestic First Class really high was useless. It could make far more money by making the upsell premium lower, and that has clearly been proven. But for Delta, it’s more than that. This is about creating stepping stones deeper and deeper into luxury experiences. It’s about investing in consumers when they are young and broke, then reaping the rewards when they are rich and unwilling to tolerate coach.

As Glen described it, they just need to give them a taste. “And what we’ve garnered from all these years of experience with these premium products is once people are flying in them, they tend to not go back.”

Put in greater detail…

It is important for us to supply Main Cabin because Main Cabin is the entry point. If you think about that life cycle, people don’t start in the front. They start in the back. And having best-in-class services in the Main Cabin — having pricepoints that are accessible in the Main Cabin — because that’s where you draw people in.

Of course, it’s not just about buying up to domestic First Class. It’s also about Comfort+, the extra legroom section that’s on every airplane. It’s about the end of single-class regional jets. And it’s about the ever-more-luxurious Delta One business class cabin. It’s all about creating the opportunities to buy up everywhere. Delta has gone from having about 10 percent of seats in the cabin being considered premium to now 30 percent. Just look at this slide.

So there are more premium seats and more affordable stepping stones. There’s also a more premium-minded crowd out there.

Millenials are apparently richer than previous generations were at the same age, and two-thirds of them are willing to “spend on luxury travel.” As the Boomers fall off, the Millenials are rising, and Delta is drooling over the opportunity. (As usual, we Gen Xers are kind of forgotten.)

What makes Delta so sure it can get those premium travelers to stick with it? The airline kept using the term “moats” around what it has invested in that others can’t quickly duplicate. For example, Delta has poured money into airport terminals to get the facilities it needs, and it has added premium seating to its fleet. It has made it more valuable for people to sign up for SkyMiles and get the Amex credit card. That, in turn, keeps them more likely to fly Delta and spend more money on the airline when they do.

This is where it gets into future evolutionary plans. Delta is trying to increase personalization. That can be about recognition and what shows up on the seatback screen, but it’s also about selling customers what they want to buy. This started with the various experience segments as shown below…

Now, Delta wants to further break those down into additional options. Here’s Glen again:

So in 2025, we’re going to try some segmenting, some additional segmenting, in a main cabin. We really already have it with Basic and Main, but do we have kind of a “Best” in that category, which we don’t really have? So if we put a “Best” in that category and then we thought, well, Comfort+, there’s no “Good,” “Better,” “Best” there. Could we start introducing that?

What this means in practice is not clear. Certainly the Delta One business cabin has a “Best” but it doesn’t have a “Good” or a “Hot Garbage” offering. This is where the idea of Basic Business comes in. If people only really care about the flat bed seat and nothing else, could they be offered a lower fare than those who want all the bells and whistles?

At the same time, in coach, could Delta offer a “Best” product that includes access to preferred seating, priority boarding/security, etc? Maybe. Delta is just trying to identify what it is that people want to buy and then find ways to push that offer out to them. It apparently isn’t ready to talk about it any further just yet.

And that was really the crux of the day. Delta is firing on all cylinders and enjoying the fruits of its labor. But looking forward, the airline didn’t give much to grab on to. Delta appears to be very comfortable staying the course that it plotted out long ago. There is something admirable in that kind of stability, but when the competitive landscape changes, airlines need to change as well. I’m not sure Delta is taking that seriously enough.

If I’m United, the only other US network airline really gunning for that premium segment, I’m liking what I’m hearing. Yes, Delta is the leader in the industry, and it has been for some time, but there is room for others to make a dent.

This doesn’t take away from the fact that Delta is the leader and has been able to consistently deliver on its promises. The presentation just left me wondering what’s next.

Delta Spends Investor Day Looking Back, Reveals Little Going Forward

Delta Spends Investor Day Looking Back, Reveals Little Going Forward

Delta Spends Investor Day Looking Back, Reveals Little Going Forward

Delta Spends Investor Day Looking Back, Reveals Little Going Forward

Delta Spends Investor Day Looking Back, Reveals Little Going Forward