:max_bytes(150000):strip_icc()/GettyImages-2211485612-c46b7ff76c0c4173bd659f7f9f72e51e.jpg "Delta’s President Expects Main Cabin Airfares to Climb. ‘The Math Has to Work.’")
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Key Takeaways
- One way or another, Delta President Glen Hauenstein said, the prices of main cabin airfare are likely to rise because their low profit margins are putting pressure on carriers.
- Delta reported that revenue from “premium” tickets surpassed revenue from basic tickets in the fourth quarter.
Basic airfares may not stay at current prices for long.
The price of domestic, main cabin seats will likely increase as air carriers adjust to remain viable, Delta Air Line (DAL) President Glen Hauenstein said. Airlines, including Delta, are losing money on the act of transporting passengers, instead profiting from ancillary services, such as co-branded credit cards. And losses tend to be larger in the main cabin, so carriers focused on that segment are under more pressure than Delta, Hauenstein said on a conference call about the company’s fourth-quarter results.
“At some point, this is going to shift,” Hauenstein said Tuesday, according to a transcript made available by AlphaSense. “That’s just how the math has to work.”
Delta’s fourth-quarter earnings came in slightly below analysts’ expectations, and the carrier released a more restrained profit forecast than Wall Street anticipated.
Why This News Matters to Consumers
Reduced main cabin capacity may impact more than prices. Operational shifts and consolidation could result in specific flights being offered on fewer days or at fewer times.
Bookings hit a weekly record in early January, with premium ticket and business travel picking up, Delta CEO Ed Bastian said. Still, a number of developments have made tracking travel demand difficult, including caps on flight traffic during the government shutdown in November and recent storms, the company said.
Sales have been sluggish for the low-cost seats often purchased by those on a budget, Delta and other carriers have said, while purchases of first-class and international tickets have held up as wealthier Americans’ appear less sensitive to economic pressure. Delta’s “premium” ticket revenue hit $5.7 billion in the fourth-quarter, topping the $5.6 billion from basic tickets.
Airlines including Delta and United Airlines (UAL), are reducing their main cabin capacity. Two budget carriers, Sun Country (SNCY) and Allegiant Travel Company (ALGT), plan to tackle the challenging environment by merging. More operational shifts are likely, Bastian said.
“It’s taken a long time, but it’s happening,” Hauenstein said. “It’s happening with capacity reductions. It’s happening with consolidation, and it will continue to happen around us until main cabin returns accelerate.”
