Delta’s president says the days of winning with the cheapest fares are over, and explains how investing in premium products – and then merchandising them – is getting flyers to pay more and driving record profits.
Airline President Glen Hauenstein shared an interesting observation about how passengers buy airfare today at the Morgan Stanley Laguna Conference on Thursday.
- It used to be that the lowest-cost competitor won. Spirit and Frontier had the highest margins.
- Now winning means generating the highest revenue from premium products. The airline that offers the best experience generates the highest margins because customers are willing to pay up for ‘the best’.
He says Delta is now making the most money on what’s normally thought of as a highly competitive route, New York – Los Angeles. And that’s because they are investing the most in the (ground) experience on both sides of that.
Customers used to buy air travel on schedule and price. There are three reasons for this, and why it’s changed:
- The products themselves weren’t distinguishable, and no airline really had a brand that said ‘this is going to be consistently better than what you’ll buy from someone else’.
- Airlines sold their products on schedule and price. They didn’t really lead with what separated out their product from other airlines (or one product from another) at the same airline. Part of that was just the technology being used for the selling – it was all organized around schedule and price, not product attributes.
- Customers themselves have gotten pickier and more willing to pay for experiences. That’s not new since the pandemic, though it’s certainly accelerated. Not unrelated, the U.S. is wealthy is keeps getting wealthier.
They aren’t just selling to corporate travelers anymore on managed contracts, where their employer sends them out on a preferred airline. In fact, Delta admits that corporate travel hasn’t gotten back to pre-pandemic levels (let alone returning to trend, where business travel would have been in 2025 if trends had continued).
That’s obvious – the Monday to Thursday consultant flying out to work on-site with clients doesn’t exist the same way any more. When the clients aren’t in-office every day and when zoom has taken the place of some meetings at the margin, you aren’t going to get back to where you were. But Delta is honest about it.
There are implications to this. People aren’t just buying tickets following a travel policy. Customers have some discretion.
So the airline has a plan to ‘unbundle’ business class, degrading the experience unless you pay more. And they are branding their fares for each product under the rubric of ‘good, better, best’ so you have three choices for what to buy (and buy up to). They’re adding premium seats to aircraft to sell more, and they’ll be selling them at more price points.
The idea is to get people to pay up for what they value, and they’re going to be “announcing tests” for how they’ll do this in the coming weeks.
Delta’s CFO specifically called out that they’re going to expand the extra-legroom coach Comfort+ product and “iterate on” it “to bring more options to customers.”
And as we continue to reengineer how we think about selling tickets, you’ll see us come up with more creative solutions here that try and value what consumers value so that when they pay a higher ticket price, they know they’re getting more value.
However, Hauenstein is mindful of testing to ensure that as they push customers more that they don’t dilute their brand in the process.
Not as much related to premium, but still on the subject of customer choice and when they’re flying, Hauenstein shared that traditional airline seasonality has shifted. It used to be that summer was peak of peak, but that’s flatted out – spring and fall have improved, though. That’s great for airline costs as they generate more revenue, because the carrier doesn’t have to build an operation just for the spikes and maintain it through deep dips.
Airlines aren’t the first business to experience this! Retail makes most of its money and does most of its volume in the pre-Christmas holiday shopping people. Amazon had to build server and shipping capacity to meet that demand, but it meant they had excess capacity the rest of the year. It’s that excess server capacity that’s the origin story for their AWS business.
Credits: Delta
