Delta Air Lines’ Strategy to Capture the Premium Traveler

Amy Stewart

Skift Take

Delta CEO Ed Bastian, who left the company briefly in 2005, loves to tell the story about why he quit. At the time, Delta was pursuing a discount strategy that he didn’t like. Not long after he returned, Delta made aggressive moves for premium traffic, which has made it considerable money since with new efforts under way.

After Covid-19 hit, some wondered whether this pandemic, a Black Swan event no one expected, would change the airline passenger experience forever, altering what customers expected on board and at the airport. But Delta Air Lines reports it is nearly business as usual, even as variants continue to spread, an executive said this week in an interview.

Cleanliness, while important, no longer drives as much preference as earlier in the pandemic, said Ranjan Goswami, senior vice president for customer experience. Instead, despite all the change and upheaval, the airline’s customers say they want the same stuff as in pre-pandemic times — faster Wi-Fi with streaming capability, on-time performance, and a more premium, more consistent experience, with hot food in business class. Customers also want more self-service options and digital tools so they can solve problems without speaking to an airport agent.

“People are getting back to, ‘Hey, I need to be on time,’” Goswami said. “Whereas before it was about, ‘I want the seat free next to me,’ now it’s about going back to the hard product.”

Premium Leisure Bet

Delta made considerable investments in passenger experience during the pandemic, including funding major improvement projects at several key airports, including Los Angeles. These moves now appear prescient but did not always seem like a shrewd investment. Indeed, Skift in its 2022 Megatrends report identified the rise of premium air travel as one of the major travel trends evolving this year.

Even in a worst-case scenario, few insiders believed traffic would remain down for 80 percent for more than a few months. Eventually, they figured, people would want to see family, or take a vacation, and would be willing to accept the health risks.

But it wasn’t always clear what kind of air travel experience these people would be willing to pay for. Would they want the cheapest fares, as leisure travelers typically prefer? Or would they pay extra for the big seats up front? Before the pandemic, corporations purchased a major percentage of premium seats, though airlines were reporting improved premium leisure sales.

Delta’s data suggests they’re increasingly paying for the best seats. Earlier in March at an investor conference, Delta President Glen Hauenstein told analysts that premium load factors have been about 10 points higher than economy class during the pandemic, a trend he said should continue. He reminded analysts margins for premium seat sales are significantly higher than for economy.

Goswami said at least two trends are boosting premium leisure travel. First, he said, people are engaging in “revenge travel,” as they seek to make more trips and spend more money to make up for lost journeys during the worst of the pandemic. And second, some of Delta’s customers are increasingly nomadic and take advantage of corporate policies allowing them to work from anywhere.

“I think people realize that experiences are things we want more of,” Goswami said. “For all the customers who might have said, ‘I’m going to spend my discretionary income in some other way,’ travel is becoming more of a meaningful part of what they want to spend their time and money on.”

A Sustainable Trend?

Delta, like other airlines, has signaled business travel is returning. But it is still lagging 2019, with Hauenstein saying corporate-related revenue is only about 65 percent recovered compared to three years ago.

Still, the airline is moving forward with a new premium-heavy narrowbody airplane that in normal times might be expected to fly on denser business routes. This Airbus A321neo subfleet will have four seating areas — business class, premium economy, extra-legroom economy, and economy.

It’s a similar product to what Delta offers on some internationally configured jets, Goswami said. He did not say where the new airplanes will fly.

“This goes back to the overall strategy, which is about creating more distinct brand experiences in the cabin,” he said. “What we’re doing here is a wonderful narrowbody product that can offer that same distinction, which allows us to find a lot of different premium markets.”

Delta also is expected to open a new lounge for its most premium customers in New York, news that surfaced in a bond prospectus from the New York Transportation Development Corporation. While Goswami declined to confirm it, he noted the airline is seeking to strengthen its premium offerings.

“Watch the space,” he said. “You’re going to just see us continue down this 10-year path where premium matters. We’re going to win more premium customers.”

https://skift.com/2022/03/31/inside-deltas-strategy-to-capture-the-premium-traveler/

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