Delta Air Lines is leveraging its position of strength in Europe, thanks to its transatlantic joint venture partners, to launch four new routes in Summer 2016 that will benefit its mid-size, and inland hubs in the U.S., a bold game-changer in strategy as it currently concentrates the vast majority of its transatlantic flights from coastal gateway hubs at New York JFK and Atlanta.
To date, Delta has announced that it will launch services from Salt Lake City to London Heathrow, Raleigh/Durham to Paris Charles de Gaulle, Minneapolis/St. Paul to Rome and Detroit to Munich, all of which are slated to commence in May 2016. Of these four routes, three are summer-seasonal, with Raleigh/Durham serving as the only year-round route owing to the growing business ties between the Research Triangle Park in North Carolina and Europe.
Delta adds Heathrow service to SLC’s growing portfolio of international flights
Salt Lake City airport remains the sole pre-merger Delta hub, outside of Atlanta and New York, that has seen Delta add long-haul service since 2008. Transatlantic service on pre-merger Delta was handled primarily from Atlanta, New York and to a lesser extent, Cincinnati/Northern Kentucky airport (since de-hubbed, although a link to Paris remains). Transpacific service was handled via Portland (since de-hubbed) and Atlanta. The Northwest merger gave Delta enhanced access to the Asia Pacific region via Detroit and Tokyo Narita, and Delta has since also beefed up its Asia Pacific network from Seattle, Los Angeles and Honolulu, again largely thanks to the strong presence of Northwest in each of those markets.
Salt Lake City’s first link to Europe commenced in 2008 with a nonstop flight to Paris, which has been in operation since on a daily 767-300ER. The following year, Delta also experimented with a nonstop service from Salt Lake City to Tokyo Narita, but the route ultimately failed due to lack of a suitable aircraft to serve the market given the high altitude of SLC airport. Delta added seasonal service to Amsterdam from SLC in Summer 2015, and London Heathrow will effectively round out its third European market during summer 2016.
Whereas Paris and Amsterdam are effectively larger SkyTeam hubs for Delta, and therefore can connect large volumes of connecting traffic from Salt Lake to other regions of the world, London Heathrow represents a slightly different opportunity despite being a joint venture hub for Delta via Virgin Atlantic. Compared to KLM at Amsterdam and Air France at Paris, Virgin’s network from Heathrow is smaller and limited to a few long-haul markets in the Middle East, Asia and Africa. Though helpful, the partnership with Virgin was likely not the primary driver for launching this route. Rather, Delta has identified that Salt Lake’s geographic location can be leveraged favorably to support transatlantic traffic to the Mountain West.
West of the Mississippi, Delta offers nonstop service from Seattle to London Heathrow, and while Delta’s domestic hub from Seattle is growing, it does not support the same number of cities with as nearly as many frequencies as does Salt Lake. Data from CAPA shows that Salt Lake City offers approximately 327,000 weekly seats to domestic points for the week of October 5, 2015, whereas Seattle offers 149,000, all on Delta metal. Of course, this data excludes codeshare opportunities afforded by Delta’s partnership with Alaska out of Seattle, which certainly augments Seattle’s attractivity as a domestic connection hub.
Still, Salt Lake provides opportunities for Delta to mine for yield-rich traffic flows given that its European network is offered exclusively on Delta, compared to much greater fragmentation in Seattle (among carriers which also partner with Alaska, such as British Airways) hence diluting the revenue share. Furthermore, Delta recently pulled the plug on its Los Angeles – London Heathrow flight, which opened up an opportunity for another airport in the domestic system. In Los Angeles, Delta has a major focus and has vocally indicated its aggressive stance in protecting market share while growing ASMs wherever feasibly possible, but there is more room for growth out of Salt Lake City. Los Angeles will continue to be operatonally challenging for all U.S. airlines with various runway closures throughout the next few years due to reconstruction, which hampers its attractivity as a connecting hub.
Salt Lake City, in addition to offering a wider array of smaller markets throughout the Mountain West, does not have any constraints with regards to airspace, facilities nor runways, and Delta also will not have to compete against the likes of British Airways/IAG, American, United and Air New Zealand, as it does in a crowded market like LAX-LHR. Finally, the strong and growing banking ties between Salt Lake City and London should be able to offer enough premium demand to aid the development of SLC’s new Heathrow route.
Raleigh/Durham’s ‘Research Triangle’ touted as a driver behind new Paris route
In its Press Release, Delta highlighted the allure of the Research Triangle Park (RTP) as a major driver for its new route from Raleigh/Durham to Paris. RDU has long been neglected by US carriers as a possible hub and/or focus city ever since American discontinued its Raleigh hub in the 1990s. RDU, despite being home to a sizable number of corporations specializing in pharmaceutical, technological and financial research, as well as higher-education campuses such as Duke University and the University of North Carolina, has only maintained one nonstop link to Europe since American’s hub days, which entails a daily 767 to London Heathrow (777 in the high season).
Meanwhile, American, and merger partner US Airways, have retained a small domestic presence at RDU, serving primarily hub stations from both carriers in addition to the daily London Heathrow flight, which was launched in the late 1980’s thanks in part to an incentive pledge from GlaxoSmithKline former CEO Bob Ingram, according to RTP Business Journals. However, reports from the RTP Business Journals have claimed that over time, the flight has become less dependent on contracts from GlaxoSmithKline and that the local market has merited an additional transatlantic flight for several years.
In the late 2000’s, Delta had alledgely unveiled plans to launch a RDU-Paris flight which never materialized, as Delta opted instead to serve Pittsburgh and Philadelphia from its Paris hub (in conjunction with Air France) and place RDU on a back-burner given the softening economic climate. With the airline industry landscape in a much healthier state than in 2009, Delta has made a more formal commitment to RDU, largely accelerated by revenue pledges from the RDU Transportation Authority. In October 2014, the RDU Airport Authority pledged to spend $2.1 million in first year incentives for a carrier to launch a flight to either Paris or Frankfurt, with the deal sweetened by waived landing fees, rents and custom processing.
Delta was, of course, identified as the primary candidate for service as the largest carrier at RDU by seat share, according to CAPA, at 30.1% for the week of October 5. Delta operates a small “focus city” at Raleigh/Durham with service to Atlanta, Hartford, Boston, Baltimore, Cleveland, Columbus, Cincinnati, Detroit, Fort Lauderdale, Indianapolis, New York (JFK and LGA), Los Angeles, Orlando, Miami, Minneapolis/St. Paul, Philadelphia and Tampa.
Therefore, the strength of RDU as a reliever connecting point from some of these markets, along with the connectivity of the massive network from Paris on Air France, should render the flight a success. RTP journals have claimed that the new Paris flight opens up an additional 51 markets on the European continent alone that will be added. Scheduled flights will operate on a daily 757, configured with an international Delta One class for premium passengers.
DL230 RDU1813 – 0835+1CDG 75W D
DL231 CDG1045 – 1357RDU 75W D
Delta adds Rome to MSP’s portfolio of European markets, rounding out all of the major SkyTeam hubs
Delta’s service announcement from Minneapolis/St. Paul to Rome was a unknown secret, although the logic behind the route makes sense given that Rome is the primary base of SkyTeam member Alitalia. Data extracted from Diio Mi for the high-season of travel to Italy, utilizing Q3 2014 data, appears to indicate that MSP to Rome is a roughly 45 PDEW market (passengers per day, each way) with a large concentration of traffic traveling between MSP and Rome via Detroit, Amsterdam, New York JFK, Atlanta, Paris, Boston, Chicago O’Hare and Toronto on a combination of Delta, Alitalia and Air France-KLM.
Gross fare and revenue data also seem to indicate that it is not only a larger market than a comparative city pairing (example used being Charlotte – Paris), but also commands a higher average fare and produces a larger revenue sum for the quarter.
It is also well-known that MSP airport punches above its weight class as a Delta hub, especially during the peak summer season. Air France has operated a 5 weekly service from Minneapolis to Paris on board an Airbus A340-300 between May through September each summer since 2013, in addition to Delta’s daily Airbus A330-300. Delta also operates a daily 767-400 flight to London Heathrow and as many as 3 daily Minneapolis – Amsterdam flights in peak season, alternating between Airbus A330 and Boeing 767 frames.
Although much of Delta’s competitive position in Minneapolis is attributed to its highly dominant market share position at 72.3% of overall seats, it has seen recent entrances by Icelandair and Condor with seasonal services to Reykjavik and Frankfurt, respectively, slice into its European traffic. Icelandair offers a wide-array of destinations to the European continent and appeals to the budget traveler.
Furthermore, similar to Salt Lake City in the Mountain West, MSP airport provides connections to a large array of secondary and tertiary cities in the Central Heartland, Upper Midwest, Western Canada and northern Desert Mountain area that will no longer require a double connection in order to reach Southern Europe.
Seasonal service from Detroit to Munich to target auto industry and tourism
Detroit is Delta’s third largest hub, ranking behind Atlanta at #1 and slightly behind Minneapolis/St. Paul at #2. Prior to Delta’s merger with Northwest, Detroit served as the primary transatlantic gateway hub for the Northwest/KLM joint venture, although its network breadth was relatively limited to primary European markets such as London Gatwick (pre-Open Skies of 2008), Frankfurt, Paris and Amsterdam. Summer seasonal flights to Rome, Milan, Brussels and Dusseldorf were attempted at some point utilizing international-configured 757s, but most of these did not last beyond the merger nor the Global Financial Crisis of 2008.
Since Delta’s merger with Northwest, Detroit has primarily retained links to the four “core” European markets while offering a summer seasonal route to Rome since 2010. The Munich route will be the first new addition to Detroit’s European network in several years, which is salient given that Detroit, similar to Minneapolis/St. Paul, punches above its weight class in terms of offering a stable portfolio of international routes which connect to a vast domestic network around the U.S. Heartland, Upper Midwest, East Coast, Canadian border and Southeastern U.S.
Notably, Detroit – Amsterdam is the largest international route in Delta’s global network based on seats and ASMs, although one could technically argue that Atlanta – Amsterdam is equally large when factoring in Delta + JV partner KLM. Detroit – Amsterdam is not served on KLM metal as part of the terms of the Joint Venture agreement, which stipulates that a certain portion of transatlantic routes must be flown by the participating carriers. This, of course, is coordinated by the participating airlines themselves.
Subtle nuances exist in order to maximize revenues and maintain lean cost operations. For example, in Detroit, Delta and Air France offer daily services each to Paris, but in Seattle, flights to Paris are handled entirely by Delta.
Still, the mere fact that Detroit – Amsterdam is as large as it is may indicate that Delta has further room to grow in Europe from its Detroit hub, and offer some relief to Delta’s larger transatlantic gateway in Atlanta.
Delta intends to utilize a 767-400ER on its Detroit – Munich route, which will offer a larger mix of premium seats (40 versus the standard 26-35 utilized on Delta’s international 767-300 frames) which may indicate that Delta forecasts higher premium demand for the route. The presence of the Big 3 automobile manufacturers headquartered in Detroit can be tapped into, and the connectivity of Delta’s services from Detroit to the Southeastern U.S. where laborers and manufacturing plants for BMW are located.
The challenge for Delta will be competing with Lufthansa, which operates a hub from Munich with a nonstop flight to Charlotte, N.C., an hour’s drive away from one of BMW’s largest manufacturing plants in Greenville. However, with the severance of US Airways from Star Alliance as it merges with American next week, and as a correlation, becomes part of OneWorld, the opportunity to capitalize on movements in loyalty may be ripe for Delta and SkyTeam.
Lufthansa also operates a daily flight from Frankfurt to Detroit on an Airbus A340-600 and 747-400, and has performed well on its Detroit flight given the presence of automobile industry traffic between Southeastern Michigan and Germany.
This is a sensible time for Delta to experiment with new route pairings
Delta is expected to report on its third quarter earnings in a few weeks and will provide more insight into how its geographic regions (domestic, Atlantic, Pacific and Latin America) performed on a year-over-year basis. Past history has indicated that the appreciation of the U.S. dollar against the Euro, as well as lower fuel surcharges, created challenges for Delta in Q2 2015 as unit revenues fell 11% and yields decreased 6.5%, according to CAPA.
In spite of these challenges, Europe remains one of Delta’s more optimistic geographic regions given the levers it can pull with its joint venture partners – Virgin Atlantic at London Heathrow, KLM Royal Dutch Airlines at Amsterdam Schiphol, Air France at Paris Charles de Gaulle, and Alitalia at Rome Fiumicino airport – to broaden its portfolio of U.S. – Europe city pairs.
These additions are salient given that Minneapolis/St. Paul and Detroit are hubs that were inherited from Delta’s merger with Northwest Airlines, and have maintained a relatively consistent level of international flights since the merger in 2008. Furthermore, Salt Lake City has experienced a steady pace of growth, but its geographic position in the American West, as well as its function in the overall Delta network, has rendered it primarily a domestic hub since the merger. Raleigh/Durham has also been grooming for increased transatlantic service, and a rebounding economic climate plus lower fuel prices provides an ideal scenario to test the waters.