Thursday, June 19, 2014

Delta Air Lines: Between Smart Growth and Being a Bully

Delta Air Lines (DAL) is the big dog in the air, letting the likes of United Continental Holdings (UAL) and American Airlines (AAL) play catchup. Is it also becoming a bully?


Cowen’s Helane Becker and Conor Cunningham think Delta might be–they ask “Delta Becoming the Schoolyard Bully / the Junkyard Dog?”–and that has them worried. They explain:

Last week Hawaiian Airlines (HA) announced they will suspend service from Honolulu to Fukuoka after two years of unprofitable service. Hawaiian stated the market was not profitable. Delta recently started flying Honolulu-Fukuoka (and they have hedged the Yen at 80); both US airlines were operating about half full. As a result of Hawaiian leaving the market, we expect Delta’s load factors to improve. Delta has been slowly overlaying a lot of competitor capacity on the West Coast, especially to / from Seattle…

We have long viewed Delta as an industry thought leader, so we aren’t surprised they have become the industry’s growth leader. We are modestly concerned about this competitive capacity though as much of the industry turnaround was related to playing well in the sandbox, and Delta is now walking a thin line between smart growth and market share grab.

Shares of Delta Air Lines have dropped 2.4% to $32.41, while United Continental Holdings has fallen 2.5% to $43.86, American Airlines has declined 2.7% to $35.94 and Hawaiian Airlines has gained 1.2% to $12.18.

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