Did Delta (DAL) Blow it?

October 5, 2023

As the aviation industry gears up for Delta Air Lines' earnings announcement next week, there's a lot to unpack from the recent events that have shaped the airline's trajectory.

Here’s the story…

Southwest Airlines, a major competitor, faced a significant setback during the holiday season, with a whopping $220 million loss attributed to over 16,700 flight cancellations in late December. While a major winter storm was the catalyst, Southwest's outdated software systems exacerbated the issue, causing prolonged delays and disruptions. In contrast, other airlines managed to return to regular operations more swiftly.

Initially, Delta seemed poised to capitalize on Southwest's missteps. However, Delta's recent modifications to its SkyMiles program, which shifted the loyalty program's focus from miles flown to money spent, stirred controversy. The changes made it notably harder for frequent fliers to retain their elite status. For instance, achieving Silver status now requires double the previous spending amount. Moreover, the new restrictions on SkyClub access, especially for credit card holders, added fuel to the fire.

The backlash was palpable, with a significant drop in positive sentiment and a surge in consumer distrust. Many disgruntled fliers even expressed intentions to switch their loyalty to United Airlines.

Delta's previous earnings report had painted a rosy picture, with the airline posting record revenues and earnings for the second quarter, buoyed by robust international travel demand and reduced fuel costs. However, the airline's recent adjustment to its profit estimates, citing rising costs, especially in fuel and maintenance, indicates potential headwinds.

While Delta's second and third quarters are traditionally strong, the recent SkyMiles debacle might cast a shadow on its upcoming earnings. The airline's attempt to recalibrate its SkyMiles program could be seen as a move to bolster its outlook, especially in light of its adjusted profit estimates.

In this evolving landscape, United Airlines emerges as a dark horse winner. With Delta's recent missteps and the potential contraction in consumer spending, United seems to be gaining an edge in consumer preference – and forward-looking web traffic.

As Delta grapples with the aftermath of its SkyMiles changes and the potential impact on its earnings, all eyes will be on United to see if it can seize this opportunity and solidify its position in the market.

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