Delta teases at unbundling forward-cabin fares

Delta is contemplating unbundling its forward cabin offerings. 

Speaking during the airline’s second-quarter earnings call Thursday, Delta president Glen Hauenstein hinted that a significant announcement could be in the offing. 

“I think you are going to have to come to Investor Day to hear more about that,” he said in response to an analyst’s question, referencing the planned November event. “We’ve talked conceptually about that. I think we’ll be giving you more details.”

Hauenstein went on to say that this year’s Investor Day “will be very exciting.” 

At present, Delta offers only bundled products in its business class, first class and premium economy cabins. Those products include such items as checked bags, food and beverages, seat assignments, lounge access and priority check-in. 

But in the main cabin, Delta and other full-service U.S. carriers have had success with unbundling. A passenger in a Delta main cabin purchases a ticket that includes an advanced seat assignment and a carry-on bag. But flyers pay more for items such as checked bags, meals, alcohol, extra legroom and for selecting a well-positioned seat. 

Delta also sells no-frills basic economy tickets in the coach cabin. 

Some global carriers have unbundled forward cabins. For example, British Airways charges extra for seat selection in its Club World business class. Lufthansa, meanwhile, intends to charge several price points in its new Allegris business class, depending on the location and characteristics of each seat.

Delta records 5% year-over-year revenue increase for second quarter

Delta’s strength in the premium market helped the company record a 5% year-over-year increase in revenue for the second quarter, even as a glut of U.S. capacity has driven economy ticket prices down. For the quarter, Delta’s main cabin revenue was flat year over year on 8% more capacity. But premium product revenue was up 10%. The carrier also reported strong revenue growth from its SkyMiles loyalty program and its co-branded credit cards, including $1.9 billion in renumeration from American Express, a 9% year-over-year increase. 

For the June quarter Delta reported net income of $1.3 billion, down from $1.8 billion a year ago as operating expenses increased 10%.

But it is the carrier’s lower earnings-per-share expectations for the current quarter that caused investors to sell off Delta and other airline stocks on Thursday. Delta said it expects earnings-per-share of $1.70 to $2 for the third quarter, compared to the June quarter’s earnings-per-share of $2.36. 

Driving forecast are low airfares, which Delta executives attribute to overcapacity across the U.S. airline sector. U.S. airfares dropped 5% between May and June when adjusted for seasonality, according to Consumer Price Index figures released by the Labor Department on Thursday. But Hauenstein struck a positive tone, saying that the industry is responding faster than he’s ever seen to oversupply.

This month, U.S. carriers are scheduled to fly 5.9% more seats than last July, according to Cirium flight schedule data. But capacity is only scheduled to be down 3.6% year over year in September.

Delta stock was down approximately 6% for the day in mid-afternoon trading.