December 14 - Is Delta Air Lines A Consumer Champion?


INDUSTRY ANALYSIS


It wants to double your journey time from the US to India!

After making the transparently false claim that safeguarding American jobs, not advancing its profit-maximizing protectionist agenda, is the sole motivation for its anti-Open Skies and anti-Gulf Carrier consumer choice agenda, Delta Air Lines is at it again. Delta now disingenuously is cloaking its anti-passenger, competition-destroying aspirations in pro-consumer arguments. In its latest policy paper, Delta purports to chronicle “[h]ow Middle-Eastern Carriers Hurt America’s CONSUMERS.” 

Don’t be fooled. Always judge Delta by its actions, not its lobbying rhetoric. For instance, Delta claims it is a champion of US jobs. Really? Delta’s multi-billion buying spree of European and Canadian manufactured Airbus A350, Airbus A330neos, Airbus A321neos and its Airbus/Bombardier A220s obliterates that myth. Exactly how can Delta simultaneously be the self-professed champion of American workers, and an acolyte of President Trump’s US job-creation agenda, while turning its back on US aerospace workers and off-shoring tens of thousands of US manufacturing jobs? There isn’t a shred of truth to Delta’s US jobs advocacy.

Laughably, Delta now “heroically” portrays itself as a noble champion fighting for consumers. It wants us to believe that its anti-Open Skies agenda is motivated by a laudable desire to protect consumers from the dangers of competition from Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers), and to protect passengers from themselves as Delta apparently thinks they are too ill-informed to recognize these dangers.

For example, according to Delta, consumers should realize that less, not more, competitive choice is better for them. Passengers should also realize that they are best served by inefficient circuitous routings with multiple connections on several airlines resulting in grossly inflated total travel times rather than efficient, single-carrier routing with far less total travel time. Delta apparently also believes it must protect passengers who misguidedly think it is better to be able to fly to/from the US on Gulf Carriers to destinations around the world - that neither Delta nor its SkyTeam alliance partners efficiently serve - rather than be content with no workable service options at all.   

Do passengers need Delta’s selfless and altruistic protection from evil Gulf Carriers? No. Consumers are smart. That is Delta’s concern and its greatest fear. Consumers love the service and value proposition Gulf Carriers provide, not to mention the convenient single-carrier, one-stop travel options available over their well-placed hubs. Delta’s fear is passengers will continue to vote with their wallets in increasing numbers by choosing to fly with Gulf Carriers. Delta’s concern about passengers extends no further than its bottom-line self-interest, and its arrogant and entitled belief that they are “Delta’s passengers” and if they choose to fly another carrier they have been “stolen.”   

One thing is readily apparent from Delta’s nearly four year protectionist battle against Open Skies and Gulf Carrier competition: whatever Delta says, the exact opposite likely is true. 

For example:

  • Delta told the Obama and Trump Administrations that it was suffering commercial harm due to Gulf Carrier competition. However, Glen Hauenstein, Delta’s President, bluntly admitted to Wall Street analysts that claim is false. In Mr. Hauenstein’s own clear and unequivocal words, Delta, in fact, is not suffering any adverse commercial impacts at the hands of Gulf Carriers. (Delta’s Q2 2015 earnings call transcript on July 15, 2015 – when pointedly asked by Michael Linenberg of Deutsche Bank if Gulf Carrier competition was causing Delta commercial harm by diverting traffic, Mr. Hauenstein responded emphatically “we are not.”)
  • Delta told the Obama and Trump Administrations as well as it employees that Delta jobs are at dire risk due to Gulf Carrier competition. In a slick video intended to scare its employees, Delta’s CEO, Ed Bastian, labeled Gulf Carriers an existential threat to Delta employees and their household livelihoods. Nevertheless, Mr. Bastian, at the same time, candidly boasted to the Detroit Economic Club that Delta, in fact, is on a hiring spree looking to add 25,000 workers over the next five years. (Mr. Bastian’s speech to the Detroit Economic Club was on November 15, 2017.)
  • Delta told the Obama and Trump Administrations as well as seemingly every US Senator and Member of Congress that US workers have no champion more faithful to them than Delta. Delta, though, conveniently failed to mention that since 2014 is it has repeatedly turned its back on Boeing, its All-American workforce and its US supply chain as it is on a breathless multi-billion dollar buying spree of European and Canadian manufactured aircraft - 25 Rolls-Royce powered Airbus A350-900s (anointed as Delta’s “flagship” aircraft); 35 Rolls-Royce powered Airbus A330-900neos; 100 Airbus A321neo aircraft with an option for 100 more; and 75 Airbus A220s with an option for 50 more (which Mr. Bastian declared will “be our [Delta’s] best domestic aircraft). Why Ed? What about US-manufactured aircraft?

With zero credibility, Delta now tries to play the consumer card. Delta’s latest policy paper reads “[h]ow Middle-Eastern Carriers Hurt America’s CONSUMERS.” What follows are embarrassing and unsupported arguments that, frankly, reek of desperation from a Delta management team that has already wasted tens of millions of shareholder dollars on its failed anti-Open Skies campaign. 

The premise of Delta’s argument is that consumers benefit from less, not more, competitive choice. Of course, the exact opposite is true. Delta’s argument is ridiculous on its face. While Delta’s already sky-high profits would benefit from less competitive choice, consumers certainly would not. 

Delta claims there are fewer non-stop flights - nearly 20 discontinued - as a result of Gulf Carrier competition. Upon closer inspection, those non-stop flights are a casualty of Delta Air Lines, American Airlines and United Airlines’ (Big Three) collective decision to outsource their international flying to foreign alliance and joint venture partners. That decision to terminate non-stop international flights, and instead to funnel passengers to foreign carrier partner connectors, has nothing to do with Gulf Carriers. Rather, it has everything to do with code-sharing agreements with foreign airline partners and joint venture revenue sharing agreements where the Big Three get an equal cut of revenue whether international passengers fly on US-crewed or foreign-crewed partner aircraft. 

As a result, there is a huge incentive for the Big Three to cut their non-stop international flights and instead outsource their passengers to foreign-carrier partners. Mr. Hauenstein, Delta’s President, recently bragged how successful that outsourcing strategy is for Delta. In its Q2 2018 earnings call, Mr. Hauenstein boasted, “we continue to rely more heavily [sic] our partner's [sic] EU hubs and now deployed [sic] 60% of our transatlantic capacity into their hubs.”

In other words, instead of conveniently flying passengers non-stop on US-crewed Delta aircraft to points in Europe and beyond, Delta is routing most of its transatlantic passengers to European partner connecting hubs so those with onward journeys can be divvied up among its foreign-crewed international partners. When non-stop international flights are axed due to the Big Three’s commercial outsourcing strategy, is that the fault of Gulf Carriers and the much-needed competitive choice they provide? Hardly.

Delta argues Gulf Carrier competition has led to “[f]ewer choices to Africa and Asia.” That argument is pathetic. Emirates Airline, for instance, serves 22 destinations alone in Africa. That means US passengers can efficiently travel one-stop over Emirates’ Dubai hub to 22 destinations in Africa. Fewer choices to Africa as Delta contends? Ludicrous. What about India? Emirates offers US passengers one-stop service to nine (9) destinations in India. For Africa and Asia collectively, Emirates offer US passengers one-stop opportunities to 63 destinations. Less consumer choice? Farcical, and that’s just Emirates’ one-stop service options.

Delta claims consumers are harmed because there are “[z]ero U.S. flights to the Persian Gulf.” In fact, among the Gulf Carriers, there are 27 daily non-stop flights from the US to the Persian Gulf region. However, giving Delta the benefit of the doubt that its poorly worded argument is that there are no US carrier-operated flights from the US to the Persian Gulf region - that is accurate. Why? Delta and United made a business decision to redeploy the widebody aircraft they used to operate US-Dubai flights to the more lucrative US-Europe market where the Big Three and their alliance and joint venture partners have nearly a 90 percent collective market-share lockdown. What about its Dubai-bound passengers that Delta purports to care so much about? They now are inconveniently outsourced to its European partners Air France and KLM, and routed through their European hubs often with long layovers.

Delta next resurrects its snicker-worthy argument that Gulf Carrier competition somehow harms consumers in small community air service markets. The one study the Big Three commissioned to support this argument was universally panned. Yes, the Big Three cut small community flights. They did so on their own accord to redeploy those aircraft to higher yield, more profitable markets. The argument that Gulf Carrier competition somehow is responsible and has led to “[l]ess frequency between small cities and hubs” is silly. Delta cannot credibly identify a single small city flight that has been canceled due to Gulf Carrier competition. It is a completely hollow and unsupportable political argument. It also conveniently ignores the fact that Emirates code-shares with JetBlue Airways and Alaska Airlines to more than 78 US cities, helping bolster service and lower fares to them.

Finally, Delta claims Gulf Carriers are responsible for “impacted passengers hav(ing) flown an extra 2.3 billion miles because of lost non-stop flights and inefficient/longer routings.” Delta is right. Indeed, passengers are hugely inconvenienced by its decision to outsource international flying to foreign alliance and joint venture partners. Delta is also correct that its decision to fly connecting passengers to European partner hubs in Amsterdam, London and Paris to off-load them onto KLM, Jet Airways, Virgin Atlantic and Air France foreign-crewed aircraft results in circuitous routing, grossly inflated travel times and passenger inconvenience. However, that has nothing to do with Gulf Carriers. Mr. Hauenstein recently boasted to Wall Street analysts that Delta is executing well on its consumer-unfriendly commercial strategy to fly passengers to its European partners’ hubs, create forced connections and outsource onward journey flying.

So what are the facts? Not surprisingly, they are 180 degrees opposite of what Delta claims. Gulf Carrier competition is great for consumers. Now, more than ever, consumers need more competitive choice. Gulf Carriers fill a much-needed void. Contrary to its arrogant and entitled view that Gulf Carriers are stealing “its passengers,” passengers belong to no airline. Instead, carriers must compete each day to win their business. That is what Delta fears most. Put to a choice, the carrier worries that many international passengers will choose to fly with Gulf Carriers. Rather than upping its game to compete more effectively with Gulf Carriers, Delta has turned to the US Government to try to clip their wings.

If passengers prefer to be outsourced to foreign carrier partners, and inconveniently routed to hubs on circuitous journeys often involving two and three connections, then international flying with the Big Three is fine. That model relies on no alternative options, captive passengers. However, Gulf Carriers offer a consumer-friendly alternative – single carrier, efficiently routed flights that often significantly reduce total travel time. That’s great for passengers. For the Big Three, though, that have chosen to offer an inferior outsourced profit, it is downright scary.

Competitive choice provided by Gulf Carriers often results in more direct one-carrier international routing with significantly reduced journey times. For instance, a passenger flying next week from Boston to Thiruvananthapuram, India for the holidays would strongly disagree that having the option to fly with a Gulf Carrier is bad for US consumers. That passenger could choose to fly Delta and its SkyTeam partners’ two-stop, multiple carrier service via London Heathrow and Mumbai with a total scheduled travel time of 36 hours and 45 minutes.  Or, Delta and SkyTeam can offer their express option – two-stop, two carriers service via Paris and Mumbai that will shave 5 minutes off that scheduled travel time for a daunting total of 36 hours and 40 minutes – a full day and a half.

What about Emirates? It offers that same passenger one-stop, single carrier service via Dubai with a total scheduled journey time of 18 hours and 25 minutes.  That is half the time – over an 18-hour travel timesavings, not to mention the added convenience of single-carrier service with just one connection. 

Is it bad, as Delta would want us to believe, for consumers to have a one-stop, single-carrier option whose total journey time is 18 hours and 15 minutes – nearly 100 percent - less!? Absurd.

What about a passenger flying from Dallas-Fort Worth to Colombo, Sri Lanka? Delta and its SkyTeam partners offer two-stop, two carrier service via Atlanta and Incheon, South Korea with at total scheduled travel time of 32 hours and 40 minutes. In stark contrast, Emirates offers that same passenger one-stop, single carrier service via Dubai with a total scheduled journey time of 23 hours. 

Again, as Delta claims, it is bad for consumers to have a one-stop, single-carrier option whose total journey time is 9 hours and 40 minutes - 42 percent - less!? Ridiculous. 

Delta is many things; however, a sincere advocate for consumers it is not. When Delta resorts to making consumer arguments, watch your wallet and don’t expect to find a shred of truthfulness in them. 

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