Delta Air Lines, like nearly every other major airline in the United States, is exposed to ultra-low-cost carriers (ULCCs) in the marketplace. Each airline has taken a different approach to how they interact with ULCCs in their markets. Delta, which has spent the last several years engaging in a premium-oriented strategy, believes that this strategy is the one that will keep it successful, even as ULCCs continue to expand.
Delta stays confident as ULCCs grow
On Delta’s fourth-quarter earnings call, the carrier’s executives were asked about how the airline was thinking about its strategy, network, and offerings in relation to expansions from major ULCCs. President Glen Hauenstein stated the following:
“We’ve competed with ULCCs for many, many years, and I think that’s really where we came to a couple of different strategies, including our premium strategy. And I’d like to say that some of our highest return markets, historically, have been straight up against LCCs and ULCCs. So I think we’re really not afraid to compete in those markets.”
There are a host of different ULCCs that are on major growth trajectories. Allegiant is an example of one, and Frontier has even set up a base in Atlanta (ATL), which is Delta’s largest hub and home.
The premium strategy remains key
As ULCCs grow, including in some of the carrier’s hubs, Delta Air Lines believes its premium strategy is the key to remaining successful. As Mr. Hauenstein stated, the airline has made a divergence compared to what ULCCs are doing, which thus impacts the bases of traffic the airlines are going after. As he further stated:
“[W]e think our products stand on their own and it is a very different product and a very different customer than they are going after.”
ULCCs have made their primary focus going after price-sensitive customers who book based on the cost of the fare. These airlines sell unbundled fare products. Passengers buy a ticket, but everything else comes at a cost. This includes things like seats and bags. Onboard, food and beverage, even small snacks, come at a cost.
Delta Air Lines does sell unbundled fares, but its primary focus is on consumers who choose not based on price, but choose based on product. To that extent, Delta has offered improvements to its onboard product over ULCCs. It has high-speed WiFi available, which not all ULCCs have, and provides all passengers seatback on-demand entertainment and complimentary snacks with nonalcoholic beverages.
Delta has methods of responding
Delta Air Lines does have methods of responding to the arrival of ULCCs in its core markets. On a basic level, it can add service on routes that ULCCs have entered, either by launching a new route or else adding some capacity. One such way it can do so is by selling some more basic economy fares on select routes. This is the lowest fare category that Delta offers. It has a few more perks than what ULCCs have, such as complimentary carry-on baggage and complimentary inflight snacks and beverages. However, that is assuming that Delta chooses to respond to those kinds of incursions.
Delta actively tries to encourage customers to be returning ones. One of the primary ways it does this is by offering frequent flyers a chance to earn miles and status through its SkyMiles program. Additional methods of acquiring more repeat customers include pitching cobrand credit cards inflight and on the ground. Not all price-sensitive customers, however, may be swayed to be repeat customers with Delta.
However, there is an argument for Delta still offering its basic economy fares. Basic economy, while it does have restrictions, can also be viewed as a gateway fare. For example, it could bring a new customer into Delta’s ecosystem who may be impressed with the operation or the inflight offering and then push them to stick with the airline in the long run. While this is not the largest majority of price-sensitive travelers, it is part of the reason why Delta offers a basic economy fare.
Fundamentally, however, Delta is not looking at operating the kind of model that ULCCs have. Their premium-focused strategy with a segmented cabin option that includes extra-legroom economy and a first class cabin domestically is vastly different from all-economy aircraft that ULCCs typically fly. While ULCCs grow, Delta’s premium-oriented strategy remains, and the airline believes that will make the difference and keep the airline successful.
