Delta Airlines Re-Fleeting Program: How Will It Help?
Delta Air Lines (NYSE:DAL) has kept its non-fuel costs on a tight leash, containing the at approximately 50%-53% of company revenues in the last five years.
Non-fuel costs are comprised of items like aircraft rent, aircraft maintenance costs, contracted services, and passenger services. The company expects to maintain its cost discipline going forward, growing its non-fuel costs by at most 2% in the next few years, due to its re-fleeting program. The re-fleeting program is aimed at replacing its current fleet of the MD-88s and the 50-seaters with the narrow-body fleet of 737-900s and A321s. This will not only result in better unit costs for Delta, but also drive operational efficiency. Further, the initiative is expected to bring about upgauging benefits with the company’s average network gauge increasing by 7% in 2020. Upgauging is a less risky and smarter way to grow capacity by adding seats on existing jets and replacing smaller planes with larger ones. The method also helps to increase traffic without buying or leasing new planes.
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Further, the elimination of the fuel-guzzling 747s, used primarily on trans-continental flights, will help Delta pare its cost per seat quite significantly, especially in the international markets.
Source: Delta: Delivering Sustainable Results
In order to make the delivery schedule more consistent with the expected pace of international market improvement, Delta has deferred the delivery of four A-350s from 2018 to 2019-2020. This can be further expected to help the unit revenues hit positive by providing capacity flexibility.
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