American Express (NYSE:AXP) is one of the world’s most recognized brands, as well as one of the most profitable companies in the world. With more than 90 million cardholders around the world and over 200 million points (a form of currency for each cardholder) in their American Express Travel Rewards program, the company is doing even better than most analysts’ expectations.
Delta Air Lines, (NASDAQ: DAL), is widely recognized as the premier airline that serves both domestic and international traffic, and for good reason. This company is well-versed in transoceanic travel, and has the infrastructure, equipment, and expertise to haul massive amounts of cargo across the globe.
The airline industry is a complicated place. From the very top down, there are all kinds of layers of management that have to be in place to make sure every last detail is being taken care of. This goes for all kinds of things, such as that the airplane’s toilet paper is being stocked, and that the pilots have mastered the use of the plane’s navigation systems. What many people don’t realize is that Delta, unlike many other carriers, has a lot of people at the top of the organization who have a direct hand in deciding how things are to be done. And, as you might have guessed, they’re not exactly the type of people that want to be writing a press release saying that they’re expecting future bailouts. ~~
How Delta’s American Express is doing, and why they expect future bailouts
Gary Leff 3. June 2021 Delta CEO Ed Bastian spoke Thursday at the 37th annual Alliance Bernstein Strategic Solutions conference and announced a turnaround for his airline – it will break even in June and expect to make money in the second half of 2021. Along the way, he shared some interesting facts about the American Express card partnership, blocked middle seats and Delta’s strategy for the future.
- Delta-Amex partnership fully restored American Express co-brand spending is already starting to outpace 2019. They are back to 2019 levels for card purchases, which is important because new subscribers should replace the usual surge of cardholders who choose not to use services, even if the pandemic is not taken into account. They have put the bleeding in their customers’ wallets and people are using their cards.
- Middle seat lock is released. Not really. Delta boasts a 35% premium over its non-commercial competitors, indicating that people are willing to pay more for a better product, in this case more space with nested middle seats. Of course, Delta stopped blocking the middle seats, so they don’t think that helped them much.
Although passenger demand was low, it did not cost them seats that would have otherwise been sold. This meant that the bottom third of the seats had to be cut off to sell them at the lowest prices, so average rates were naturally higher.
- People are fleeing OTAs like Expedia Delta.com has higher booking volume than in 2019, and more than 50% of transactions are now made by consumers directly with Delta rather than through online travel agents. They see their distribution strategy with services like Sabre as an evolution towards payment to attract quality passengers, not just traffic.
- Business travel will be different. Bastian believes that traditional business travel will decline by 20-30%, as many trips no longer make sense. But the total volume of business trips will not decrease, the composition and nature of the trips will change. He believes that video technology like Zoom is a good addition to business travel, it makes you mobile, gives you the freedom to travel and travel more because you can work efficiently on the go.
While some international overnight travel in Europe will fall away, he expects domestic business traffic to increase by 1. July will be above 2019 levels for domestic business travel on an annual basis.
- will continue to grow with Airbus Bastian pointed out the billions in taxpayer money they received and how that contrasts with countries that give subsidized loans (and it didn’t save jobs because Delta reduced staff through voluntary buyouts and promised not to do layoffs anyway). He noted that their new, larger aircraft will reduce the cost of miles per seat and that they will continue to use Airbus aircraft. Delta, which has led the protectionist campaign against foreign airlines, is not buying Boeing.
- Delta anticipated future government bailouts Bastian acknowledged the moral hazard of the bailout and stated: We have proven that the government will help us if we need it again. (It was such a heartbreaking confession that I note it takes place at 47 minutes and 59 seconds).
Lake View from the Wing
2 commentsIn this piece, I discuss Delta’s latest quarterly report, which revealed that their third quarter profits could be affected by American Express’s plans to acquire a major stake in their parent company. The takeover would likely give American Express the right to block any asset sales, and could also give the credit card company the chance to increase its hold on the airlines, which may negatively impact Delta’s profit margins and its ability to compete in the future.. Read more about omaat delta and let us know what you think.
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