June 3 - Delta is Consistent – Consistently Disingenuous


INDUSTRY ANALYSIS

 

By Kevin Mitchell – June 3, 2018


Delta is Consistent – Consistently Disingenuous

There Are Real Facts And Then There Are “Delta Facts”

Should we believe Delta Air Lines’ recent press release suggesting strongly that it is restarting US-India non-stop service next year due to the recently concluded US-UAE talks?  

To answer that question, look no further than the largely empty terminals at Memphis International Airport and Cincinnati Northern Kentucky International Airport, both of which Delta promised would remain thriving post-merger hubs before it virtually abandoned them. For Delta, the truth is whatever suits its needs or narrative at that moment. There are facts and there are “Delta Facts.”

Due to its hubris, Delta believes it is so clever it can foist its alternate self-serving version of reality on what it considers to be a naive aviation community that will passively lap-up Delta Facts as gospel. Delta’s US-India claim is but the most recent example. Let's deconstruct it and thereby expose it for what it is: nothing more than Delta Facts that bear no semblance to reality.

Delta Facts. The clear intention of juxtaposing its US-India service announcement with the conclusion of the US-UAE talks was to misleadingly imply Delta’s “victory” in those talks paved the way for that commercial announcement. However, what “victory” was that? According to Delta CEO Ed Bastian’s test for success, those talks failed and the outcome was a defeat.

If you seek candor from Delta management, earnings calls can be a refuge. In Delta’s Q3 2016 earnings call, Mr. Bastian was asked if he agreed with American Airlines’ CEO, Doug Parker, that victory in US-UAE talks would be eliminating UAE Fifth Freedom rights. Bastian had even higher expectations than Mr. Parker responding, “freezing and/or eliminating fifths would be a great start.”

According to White House and State Department statements, as well as a comprehensive Associated Press report, the US-UAE understandings failed that Bastian Test. All future rights, including Fifth Freedoms, are expressly preserved. So, exactly what “victory” was the catalyst for Delta’s US-India announcement?

Giving Delta the benefit of the doubt, perhaps the triggering event was Emirates’ commitment to file audited annual financial statements. After all, Emirates’ US-India network is unrivaled offering one-stop connections over its Dubai hub to nine Indian destinations served by 172 weekly flights. For over three years, Delta has incessantly claimed Emirates’ lack of financial transparency is prima facie evidence it is hiding massive competition-skewing subsidizes.

However, that cannot be the explanation either. According to the US-UAE Record of Discussion, Emirates, in fact, has filed annual audited financials fully consistent with international standards for “many years.” Indeed, Emirates has done so on an uninterrupted basis for more than 20 years. That is longer than either Delta or Northwest Airlines, a corporate successor, who both suspended such annual filings when they were in Chapter 11 reorganization.

So, the entire cause and effect impression Delta sought to create is total fiction. Where’s the beef, Mr. Bastian? Exactly what in the US-UAE understandings precipitated this decision? Unlike Delta Facts, the reality is there is nothing commercially meaningful in the US-UAE understandings that opened the door for Delta’s US-India announcement, much less significant enough to warrant a reversal in commercial strategy. Nice soundbite but totally bereft of truthfulness.

Real Facts. To better understand Delta’s announcement, it important to examine why Delta has been absent from the US-India non-stop market? Again, earnings calls provide a fleeting glimpse of Delta candor. In its Q2 2015 earnings call, Glen Hauenstein, then EVP and Chief Revenue Officer and now Delta’s President, was refreshingly candid. Mr. Hauenstein described Delta’s absence from the US-India market as “a missed opportunity.” Specifically, Mr. Hauenstein noted that “we have not been the largest player in the U.S. to India or the Indian Subcontinent . . .  [a]s much a missed opportunity.”

In other words, Delta’s commercial team lacked the vision that Emirates’ team had in anticipating the explosion in traffic growth between the US and India. Despite Mr. Hauenstein’s candid admission that Delta dropped the ball, that has not slowed it from blaming others for this self-inflicted commercial wound.

Delta first condemned Air India and the US Export Import Bank (ExIm). In 2012, then Delta SVP and General Counsel Ben Hirst blamed ExIm’s lending to Air India  for Boeing 787s for its decision to terminate its New York JFK-Mumbai flight and for its absence from the US-India non-stop market.

Hirst wrote:

“In 2006, Delta initiated nonstop service between New York and Mumbai, competing with Air India’s one-stop service. But between 2006 and 2009, Ex-Im provided Air India $3.3 billion in loan guarantees, which the airline used to finance long-range aircraft at below-market rates. Air India then used its new subsidized capacity to flood the U.S.-India market, dropping ticket prices by more than 30 percent, a level at which Delta could not compete.”

In that op-ed, Hirst also blamed ExIm lending for American’s short-lived, unprofitable Chicago-Delhi non-stop flight. It should be noted American canceled the flight shortly after it filed for Chapter 11, along with other routes. There is no mention whatsoever in Mr. Hirst’s op-ed about Gulf Carrier competition. Take a look for yourself – https://btcnews.co/2sCssfB. Delta Facts. At that time Air India and ExIm were Delta’s scapegoats du jour.

Then, in 2015, Delta’s narrative shifted and so too did Delta Facts. Now, Delta’s US-India “missed opportunity” was the fault of Gulf Carrier competition. As the new narrative went, so went Delta’s completely new version of the truth – it allegedly was run-out of the US-India market by purportedly unfair competition by Gulf Carriers. As to Air India and ExIm, as Roseanne Roseannadanna would say, “never mind.” That was so 2012!

Up to March 2015, Delta operated a US-crewed Delta aircraft between Amsterdam and Mumbai. It then exited that market claiming Gulf Carriers made flying between Amsterdam and Mumbai commercially unviable. However, here Delta Facts run headlong into the reality of its partner, KLM, that certainly is no fan of nor an apologist for the Gulf Carriers. In an interview last October, Pieter Elbers, the KLM’s CEO, said, “traffic from India (to Amsterdam) is booming with the launch of new services and enhanced co-operation with Jet [Airways].”  

In 2014, there were 250,000 passengers traveling between Amsterdam and India. Mr. Elbers said they now are eyeing one million Amsterdam-India passengers this year, a four-fold increase in just four years. In 2016 India was Amsterdam’s 12th largest intercontinental market. Today, it has jumped to the seventh largest. Yet, Gulf Carrier connecting service ran Delta out of that rapidly growing non-stop market? Genius spin, right?!  

It reminds one of Delta’s similar false claim about its 2016 decision to exit the Atlanta-Dubai market where it had a monopoly position. Likely for the same reason it withdrew from the Amsterdam-Mumbai market, Delta decided to redeploy aircraft to the more lucrative US-Europe market. However, why can it not simply be honest about a commercial decision rather than having to twist and distort it to feed Delta’s serial blame game?

Then there is the rapid expansion of Air India, Delta’s old scapegoat, in the non-stop US-India market. Air India flies non-stop to New York JFK, Newark, Chicago, San Francisco, Los Angeles, Dallas-Fort Worth and Washington Dulles. According to the Times of India, Air India “is looking at several other American destinations.” How is it that Delta, a considerably stronger airline than Air India, was purportedly forced out of the US-India non-stop market by alleged unfair Gulf Carrier competition but Air India, on financial life support, is aggressively growing in that market? Does alleged unfair competition harm financially stronger airlines more than basket case weaker ones? Of course not. As Mr. Hauenstein refreshingly admitted, Delta has a “missed opportunity” problem it must overcome. Yet, up to this recent announcement, Delta sat on its hands and just whined as United Airlines continues to successfully fly daily from Newark to both Mumbai and New Delhi discrediting its excuse du jour.

So what’s the most likely explanation for this overdue announcement? Delta likely decided some time ago it needed to correct its “missed opportunity” problem. Nevertheless, it likely feared making this announcement during the US-UAE talks believing it could potentially be harmful as it directly contradicts Delta’s Gulf Carrier narrative. A contributing factor may have been that Delta is awaiting delivery of additional European-made flagship Airbus A-350 aircraft to support the flights. Either way, new non-stop US-India flying will be a very minor deviation from Delta’s strongly preferred and longstanding US-India strategy of outsourcing passengers – and crew jobs – to its partner airlines Air France/KLM, Virgin Atlantic and Jet Airways who inconveniently carry its US-India passengers between European hubs and India on a connecting basis.

Glenn Kessler writes the popular Fact Checker blog for the Washington Post. Mr. Kessler awards Pinocchios based on the truthfulness of political assertions, with four Pinocchios representing the most untruthful ones. It is only fitting that we measure aviation-related untruths by awarding Delta’s. In this case, Delta’s attempt to mislead that its decision to return to the US-India non-stop market has anything commercially meaningful to do with the conclusion of the US-UAE aviation talks is a four Delta whopper.

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