Delta, Northwest look overseas to grow profits

A look at the numbers: higher yields


Delta Air Lines and Northwest Airlines entered bankruptcy on the same day in 2005, emerged from Chapter 11 this spring, and now are banking on international flying to anchor their financial recoveries.

Delta announced last week that it will begin offering nonstop service from its Salt Lake City hub to Paris as part of "the largest international expansion in its history." Delta serves 36 transatlantic markets.

Northwest has committed about $5 billion to modernize its international fleet, which includes launching the Boeing 787 Dreamliner next year.

With intense competition from low-fare carriers in the U.S. market, major legacy carriers, such as Northwest and Delta, see greater profit potential in overseas markets.

Gerald Grinstein, outgoing chief executive at Delta, said that former Northwest CEO Richard Anderson was selected last week to lead Delta in part because of his grasp of the worldwide airline business.

"He led a company that had terrific international expansion, particularly in the Far East and Asia, which fits the Delta growth plans," Grinstein said in an interview.

Northwest executive Neal Cohen said, "One of the key elements of Northwest's business plan is to profitably grow its international business."

Cohen, an executive vice president who oversees international operations, said that Northwest had 47 planes devoted to overseas flights in 2006. By the end of 2008, there will be 68 planes dedicated to international flying -- a 45 percent increase.

A close look at the numbers makes it clear why international is the strategy of choice for mainline carriers. For the first seven months of this year, yields on the fares that passengers paid in the Atlantic market increased 8.5 percent. Yields jumped 8.3 percent in the Pacific market. In the domestic U.S. markets, however, yields dropped 0.6 percent. ("Yield" refers to passenger revenue per passenger mile flown.)

That dramatic divide in revenue trends was documented by the Air Transport Association, an industry group, based on revenue collected by seven major airlines, including Northwest and Delta.

In Northwest's case, about one-third of the $6.1 billion in operating revenue it generated during the first six months of this year came from overseas flights (21 percent from the Pacific and 11 percent from the Atlantic).

Cohen said that the international slice of the revenue pie will grow, but he did not put a precise percentage on it.

In the five-year business plan that Northwest filed during its bankruptcy case, it estimated that its international flying would increase an average of 4.3 percent a year through 2010. Meanwhile, it forecast that its domestic flying would decline by an average of 2.7 percent a year.

For 2006, Delta reported that North American operations accounted for 75 percent of passenger revenue while international flying provided about 24 percent.

"Historically, Delta was a very strong domestic airline," said incoming CEO Anderson, who described Delta's Atlanta hub as the "most successful" in the world.

But in an interview, Anderson characterized Delta as "underdeveloped internationally" and said he wants to use Delta's brand and domestic network to support an international expansion.

"We have some (Boeing) 777s on order that will help us serve Asia, particularly China and the Middle East," Anderson said.

Delta and Northwest are both members of the international SkyTeam alliance, which allows for business cooperation and joint marketing of flights.

We Recommend