Delta Airlines Pricing Spineometer: 5 of 5 Vertebrae

Delta Airlines, a global commercial airline, had a positive Q1 2024. Revenue rose 7.8% to $13.7 billion and earnings before interest and taxes swung from a loss to profits of $614 million over the same period last year.

A review of Delta Airlines’ April 10^th earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

Delta Airlines serves multiple market segments with multiple offerings.  They offer domestic and international tourist, business, and managed corporate travel. They also engage in cargo shipping and MRO.  They have continued to seek product segmentation and improve their retailing capabilities.  Each of these dimensions increases complexity, and therefore the need for pricing and revenue management capability.

The U.S. airline deregulation in 1979 led to the development of the pricing technique known as yield management.  Since that time, software firms (such as PROS and Amadeus) have increasingly displaced manual and later in-house developed solutions to optimize revenue.

Delta Airlines likely applies yield management techniques and software automation to nearly all of its offerings.  As Colm Lynch, Director of Revenue and Schedules at Coach US would tell you, I and other instruct people using this technique to stop worrying about the competition and instead focus on your own actions as they relate to your own customers.  That sentiment is embraced at Delta Airlines as well.

In response to an inquiry on price Glen William Hauenstein, President at Delta Airlines, stated, “What really pushed us to do this journey several years back was the fact that on the premium products and experience aside, we controlled more of our destiny than we did on the commodity side. And so absolutely, that’s been our journey is to continue to play the game against ourselves as opposed to playing against the lowest common denominator.”

Yes, Delta is in fierce competition with other airlines, yet competition isn’t the only factor driving pricing decisions. Rather, Delta has acknowledged that the way to succeed is by focusing on improving themselves and their customer experience, not through profit-destroying price wars.

Delta Airlines’ business operations imply a need for 115 to 575 pricing professionals to be on staff to meet industry benchmarks.  Despite the automation that software brings, that alone has not been found to reduce the proper number of professionals to be engaged in pricing but rather it improves their performance and outcomes.

Research into the investment by Delta Airlines in pricing yielded encouraging results.

1. Over 150 professionals could be identified as primarily engaged in pricing and/or revenue management at Delta Airlines. And, most of these professionals operated in the Atlanta, Georgia, U.S.A. area.  Given the nature of revenue management, this geographic concentration of pricing capability is congruent with the geographic spread of Delta Airlines operations and joint venture relationships with global partner airlines.
2. Tiles ranged from specialist, analyst and manager to director and vice president. In keeping with industry standards at airlines, pricing professionals typically have significant authority and responsibilities at Delta Airlines.
3. Responsibilities of pricing and revenue management professionals at Delta Airlines spanned the business and market segment challenges Delta Airlines addresses. Many individuals were held responsible for pricing of specific offering areas such as cargo, international travel, domestic travel, premium travel, and transatlantic travel.  Some individuals were held responsible for joint-venture revenue management with airline group partners.  Others specialized in data science and its application to pricing and revenue management.  And a few were charged with pricing and revenue management strategy itself.
4. What was not identified was a group of economists studying and predicting pricing and demand patterns as they relate to business cycles, but that capability may exist at Delta Airlines.

Given the importance and capability of pricing at Delta Airlines as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of April 2024.

Delta Airlines Pricing Spineometer: 5 out of 5 Vertebrae.

DAL (Delta Airlines, Inc.) was relatively unchanged at 47 the day prior to their earnings call and 48 one week later. FY 2023 revenue of $58 billion with a 9.5% operating margin and P/E ratio near 9.

For FY 2023, a 1% improvement in price would yield an 11% improvement in operating profits holding all else constant at Delta Airlines.