Delta Airlines Projects Almost Zero Capacity Growth For 2016

Delta Airlines has announced that it plans to keep capacity growth flat for the coming year.

Delta tries to fight the declining passenger revenue measured per available seat amid declining international demand.

Delta Airlines and other U.S carriers are currently plagued by slow international demand for their services which the carriers plan to counter by cutting capacity or respectively balance new routes with existing ones.

The New York Times (access here) had an article this week, citing a Delta Airlines brief about the measure and projection for 2016.

Delta Air Lines on Wednesday said it would put the brakes on its expansion of flight capacity in 2016 in a move to fill more planes and sell more seats at higher fares. Delta, the third-largest American airline, said its capacity — or total mileage flown by its planes’ seats — would grow zero to 2 percent next year, compared with a nearly 3 percent rise this year.

Wall Street analysts, noting stagnant foreign demand for United States carriers, have pushed them to shrink international service so fewer discount fares are necessary to sell out flights. For the fourth quarter, the airline said it would keep capacity flat compared with a year earlier to slow the decline in passenger revenue per available seat mile to between 2.5 percent and 4.5 percent. That gauge fell 4.9 percent in the third quarter. Net income was $1.32 billion with an operating profit margin of 21 percent.

With this move Delta clearly wants to send a signal to reign in expectations concerning their performance for the coming year. Delta has been performing quite well during the past year, a a result of low fuel prices and added-value services Delta (and other carriers) started to sell. No doubt proper yield and capacity management also played a huge part in this. Interestingly, Delta stock value has not improved much at all over a one year period.

Conclusion

The desire of every carrier is obviously to sell their tickets as expensive as possible and not having to discount their tickets aggressively to fill the planes. Delta’s consistent profits is good evidence that they are doing something right.

An announcement like this doesn’t mean that Delta will start cutting routes every left and right but that new routes will be carefully considered and established ones more scrutinized if it’s possible to maybe cut a flight from the frequency. Also measures such as reducing seats per aircraft. LoyaltyLobby reported about such a reduction this week (access our article here).