Delta bets bigger in Boston expansion

Capacity growth may be slowing for Delta Air Lines but that is not stopping the carrier from announcing expansion in Boston, arguably a response to JetBlue’s efforts to boost its transcon market presence and a shot at that carrier’s position as the largest airline operating at Logan Airport. There are several new routes in play but the overall numbers are somewhat tempered by seasonal operations or less-than-daily frequencies.

New Boston Routes from Delta

• Two daily flights to San Francisco International Airport (757-200)
• One daily flight to Nashville International Airport (CR9)
• One Saturday nonstop flight to Montego Bay, Jamaica Sangster International Airport (A319)
• One Saturday nonstop flight to Punta Cana, Dominican Republic Punta Cana International Airport (subject to government approval) (A319)
• One Saturday nonstop flight to St. Thomas, U.S. Virgin Islands Cyril E. King Airport (757-200)
• Additionally, Delta will add holiday service between Boston and Fort Myers from Dec. 22 – Jan. 2 (E75)

In addition to these new routes additional frequencies will be added on the existing routes to Seattle, Milwaukee and Orlando.

The Saturday flights to Punta Cana and Montego Bay are set to start in December, just in time for peak holiday travel. St.Thomas service starts in February, leading into the Spring Break window. Most of the other routes will ramp up in mid-June 2017.

Delta also used the announcement to remind the industry of its transatlantic capacity operating from Boston, no doubt a shot across the bow of JetBlue as the latter considers taking of future A321neo aircraft in the “LR” model which would allow flights to Europe from the Boston hub; any move on that front is still 2-3 years or more away. Also worth noting that for Milwaukee and Nashville Southwest is the larger competitor, not JetBlue.

But what of PRASM?

Financial analysts have been riding the larger US carriers hard in recent quarters, suggesting that it is time to cut growth rates to shore up the bottom line and “unit revenue” numbers, commonly measured as passenger revenue per available seat mile (“PRASM”). During Delta’s most recent earnings call the topic was discussed several times, and the carrier acknowledged that growth needs to be trimmed. President Glen Hauenstein was quite clear, saying that “[G]oing forward, our path to improving domestic RASM starts by moderating our domestic capacity growth. This will begin in our post-summer schedule that begins late August.” The expectation was a 3-3.5% drop from peak summer to the winter, showing that Delta is willing to be more variable in its operations seasonally (though it and other airlines typically have done this anyways).

That move will help please analysts but only if the revenues shore up at the same time. Also also only if Delta can maintain that discipline in the face of significant growth coming from JetBlue and west coast rival Alaska Airlines/Virgin America. CEO Ed Bastian believes that PRASM isn’t the only metric to consider, but the analysts are, for now, zeroed in on that as a critical component.

[D]omestic is incredibly strong in aggregate. I realize the RASM numbers have been weak, but the bottom line results have been phenomenal. And the premium that we continue to generate versus the competition for domestic is about 1.20. So the team is doing a great job domestically. But we realize in order to get the RASM improvement to match the increasing fuel prices, we are going to be paying we need to be making the adjustments that Glen talked about.

Obviously stagnation is not the way to build for success but no doubt the analysts will be watching such growth, particularly coming on the heels of promised slowing of such.