DL expands SEA further with SEA-SFO flights

[eolesen]

If it does get too ugly for the guys at ALK, you could also see a lifeline thrown their way by someone else.

I suspect DL would find it difficult to keeping the agreement in place if ALK suddenly became part of AA or even WN.

 

[LD3]

If it does get too ugly for the guys at ALK, you could also see a lifeline thrown their way by someone else.

I suspect DL would find it difficult to keeping the agreement in place if ALK suddenly became part of AA or even WN.

Or would Jetblue be a good fit?

 

[FWAAA]

Is AS healthy enough to maintain a long campaign against DL?

Good question;   my assumption is that Alaska has enough cash and healthy profits to enable a lengthy battle for SEA dominance.   Its latest investor report was very rosy, and AS is closing in on a huge (even record-setting) profit in 2013.
 
Most of the AS responses so far appear to be small-dollar spending, and of course it's not a given that DL will win on every new route it begins.   AS already has much of the local traffic and those flights may not be optimally-timed for DL's long-haul connections at SEA, forcing DL to begin its own flights anyway.    
 
If DL cuts fares low enough to steal away a significant share of the local traffic, it risks filling up the planes, leaving too few seats for its Asian connecting flights.   And the whole point of this exercise is to feed its new flights to the far east.  

 

[WorldTraveler]

ALK's last earnings call devoted a significant amount of time to investment analyst concerns regarding the increased competitive environment in AS' top markets and that was long before all of these markets were announced.

AS' response has been much smaller than what DL has added which certainly includes feed for DL's int'l flights but also includes markets which help to ensure that DL gains a position in the local market. A number of the flights connect to none of the int'l flights which include flights to Europe, even if there are competing routings via other hubs.

DL and AS both are very good at revenue managing and SEA is generally a decently priced market... in large precisely because AS has dominated the market.

DL is also being very careful to not slash fares or dump excessive amounts of capacity that either can't be filled or require deep discounts in the local market for fear of creating a case for the DOJ on the basis of predatory pricing or capacity dumping. DL has great potential to fill the relatively small amount of capacity it is adding to each of these markets between the int'l connections, the local market, and the domestic flows DL is creating including YVR and Alaska.

 

[700UW]

During the Delta earnings call on Tuesday, President Ed Bastian said the carrier is restructuring its Pacific operation. "We're working to reduce the reliance on our Tokyo and Narita hubs and better utilize the gateways that we have in the U.S. compete in the major Asian markets," he said.
 

 

[WorldTraveler]

that is correct.... my dispute has always been with people who see that DL is unprofitable at NRT so they have to shrink there.

DL has consistently demonstrated that they recognize the changing business environment in Japan and are adapting but they are not unprofitable.

DL couldn't be the only airline that reported a profit in the Pacific region in the usually dead winter season if NRT didn't work - and they confirmed that by saying that NRT was the highest margin hub in the 2nd quarter.

Good companies don't wait for losses to show up to begin to change strategy. DL's strategies on the Pacific reflect the changing nature of the Japanese market, not that DL is losing money and is forced to ditch something that has worked for years.

DL will continue to be the largest US airline in the US-Japan local market and will continue to put pressure on other players in the market because DL is not walking away from what has worked and continues to work well.

BTW, the new 333s are likely going to play a significant role in the refleeting of DL's Pacific operation. Great plane, has the range to fly most of the US to Japan, and has the lowest CASM of any TPAC capable aircraft.

 

[eolesen]

It's so profitable they're starting to plan a future in which they don't need it anymore?

You should apply to be Jay Carney's replacement.

 

[WorldTraveler]

I guess you can't grasp the concept that well-run companies really do understand the changing trends in their markets and adapt to them.

DL is fully aware of the changing dynamics of the Japan market driven by HND and the yen devaluation. But the notion that some people here keep pushing that DL must be losing money because they are reducing service is simply wrong.

DOT data clearly shows that DL's Asian operation - which is the largest most heavily NRT focused of any airline - makes money on a year round basis.

meanwhile, AA loses up to 25% of the revenues it takes in on the Pacific in the winter and hasn't been profitable in Asia for quite some time yet keeps adding routes.

You should worry about why AA continues to operate flights that clearly aren't making money.

DL's new longer range 333s will play a key role in further helping DL adjust its Pacific network to the changing marketplace while giving up nothing to the competition.

BTW, you do realize that DOT 3rd quarter 2013 data shows that AA continues to have a significant revenue disadvantage to DL and UA in markets like LAX-NRT which are directly competitive between all 3 while at a disadvantage to UA on every route the two operate side by side which is all of the ORD operation plus LAX?

 

[eolesen]

Is this the AA forum or the DL forum?...

I'm not here to discuss AA. I'm here to discuss DL's statement and actions.

No sane company winds down a profitable operation, unless it's starting to show signs of decline or there is other trouble on the horizon.

Either way, not making as much money as you used to is a problem. Good on DL for pulling the plug earlier than for sticking it out.

It also seems that research note from Hunter Keay you were so quick to discredit seems to have been more on the mark than not...


So, continue to make statements about "NRT's more profitable for DL than it is for the other guys!" if you wish, but the fact remains that DL just went public with their plans to downsize NRT.

Perhaps it's just a matter of Ed Bastien forgetting to fill you in on all the details. You might want to send him a note.

 

[WorldTraveler]

there is one element of truth in what you wrote and validates what I have said for quite some time.

 

No sane company winds down a profitable operation, unless it's starting to show signs of decline or there is other trouble on the horizon.

Either way, not making as much money as you used to is a problem. Good on DL for pulling the plug earlier than for sticking it out.

It also seems that research note from Hunter Keay you were so quick to discredit seems to have been more on the mark than not...


So, continue to make statements about "NRT's more profitable for DL than it is for the other guys!" if you wish, but the fact remains that DL just went public with their plans to downsize NRT.

DL is reducing its dependence on NRT which means adding more US-Asia flights that overfly Japan SPECIFICALLY BECAUSE they recognize that the Japanese market is changing because of HND, the yen, and northern Asia LCCs.

DL's Asian operation is making MORE money than it has in a very long time - perhaps since when DL took it over - and it is because DL is able to strategically look down the road that they are downsizing to remain profitable.

You do realize that the whole premise of consolidation is to remove capacity which helps force up fares? that is exactly what DL has done on a macro level and is doing to Japan, and that is why DL is one of the most profitable airlines in the world.

DL's profitability at NRT is precisely why they are not walking away from the market and will continue to put pressure on other carriers such as UA and AA who are being forced to reduce and restructure their own NRT operations.

And it is also very likely that Parker's tolerance for "strategically necessary but money-losing flying" is a whole lot lower than the AA execs that you know and love.

 

[WorldTraveler]

DL's profitability at NRT is precisely why they are not walking away from the market and will continue to put pressure on other carriers such as UA and AA who are being forced to reduce and restructure their own NRT operations.

I didn't really expect that I'd find an example of another carrier leaving the LAX-NRT market this soon but MH is pulling out of LAX on a flight which had a routing of LAX-NRT-KUL.

http://airlineroute.net/2014/01/27/mh-lax-s14update1/

IIRC, other airlines including KE have dropped their LAX-NRT service many of which were holdouts of Tokyo being one of the shortest and largest markets between LAX and Asia enroute to other destinations.

DL's ability to retain its leadership position in the LAX-TYO market will continue to put pressure on other carriers.

 

[700UW]

Meanwhile, Delta quickly down-gauged capacity on the DTW-HND and LAX-HND routes from 747s and 777s to Airbus A330s, citing sub-par performances from the ill-conceived times. Eventually, the situation became so dismal that Delta relinquished its Detroit - Haneda slot and re-applied with the US DOT to move the allocation to launch from its Seattle hub, which, to the surprise of many, was actually granted by the DOT.

 

Delta not only faces a competitive disadvantage without a hub on the Tokyo end out of Haneda, but also offers limited connections beyond LAX as the return segment arrives into LAX in the evening. Nevertheless, by virtue of being located on the West Coast, as well as catering to a large amount of Origin and Destination traffic between the US and Japan, Delta is more likely to stay committed in fighting it out for LAX-HND. The slot times, while not ideal, are also not as terrible as they were for Detroit on Delta or New York JFK for American.
 
Morever, Delta CEO Richard Anderson has been bullish about not only securing improved hours, but also shifting Delta's Intra-Asia hub, inherited from Northwest, from Narita to Haneda. Some are skeptical about whether he has been pragmatic in approaching Japanese authorities with the appropriate tone required for his actions to become effective, but he doesn't show any signs of backing down. He certainly got his way with allowing the US DOT to grant him a second chance with Haneda from Seattle, so never say never. 
 
Second, while OneWorld considers LAX a cornerstone "hub," in reality, the alliance holds a mere 22% marketshare, outpaced by Star at 28.3%, and followed closely by SkyTeam at 18.5%, according to CAPA. Conversely, at SFO, by an large considered Star Alliance' premier West Coast hub, Star maintains a 55.2% marketshare, followed by SkyTeam next at 10.3% and OneWorld at 8.9%.

 

Delta Turns Away From Tokyo in Favor of Seattle
 
With fewer people needing to go through Narita, Delta can then start to cut back on intra-Asia Tokyo flights. There is no longer a flight to Seoul, or Guangzhou, or Busan…. The remaining intra-Asia flying can largely be categorized into two groups. Group 1 is made up of those cities that are either too far or too weak to justify nonstop service from the US (Bangkok, Manila, Singapore, and Taipei). Group 2 is made up of Pacific islands where there just isn’t enough demand from the US to fly nonstop (Guam, Palau, and Saipan). Other than that, there are only 3 outliers. Beijing, Shanghai, and Hong Kong may do well enough to stand on their own. Or maybe they will disappear as the Seattle hub strengthens.
 
Naturally, this opens up a lot of questions. What will happen to Delta’s relationship with its Asian partners, especially Korean which it seems to hate. And more importantly here at home, what will this mean for the relationship with Alaska? It’s clear that Delta has settled on a strategy of shrinking Tokyo in favor of Seattle. But what that means for the airline’s partners is still up in the air. For travelers, however, it means more one-stop options.
 

 
http://crankyflier.com/2013/10/17/delta-turns-away-from-tokyo-in-favor-of-seattle/

 

[WorldTraveler]

you forgot to mention that AA has also cancelled their JFK-HND and handed their slot back in saying they have no expectations that slot times at HND will be improved for US carriers.

Meanwhile, DL gets higher average fares on its LAX-HND service with it poor slot timings that AA or UA get on LAX-NRT.

DL seems to be succeeding at convincing DOT officials that granting improved slot times at HND without giving DL more slots will result in the demise of DL's NRT hub and the loss of a competitor in the market. Since DL isn't getting what it needs to move the NRT hub to HND which is what JL and NH wants to do, DL is content to operate half of the US carrier HND flights from the west coast, feed them itself, and be the dominant carrier in both the west coast to HND and NRT markets.

Also, given that the number of seats DL offers at LAX is within about 6% of what standalone AA offers, it is no more valid to say that DL can't provide feed for its int'l operation unless you want to say the same thing about AA also.

And we know that DL has decided to build its own feed at SEA which is what this whole thread is about.

DL strategically is focusing on the west coast. There is a whole lot more growth coming.

 

[700UW]

Last time I checked this is the Delta Airlines thread and topic is about Delta.

 

[WorldTraveler]

well it is.... of course you want to talk about DL's struggles at HND without noting that AA pulled its own HND flight.

It's part of the picture.

DL is retaining its PROFITABLE leadership position in Tokyo while also expanding into other nonstop markets from LAX and SEA.