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  • Delta Gets Contrarian
    Posted by Andrew Compart 10:10 PM on Dec 09, 2008

    Right or wrong, the general wisdom among airline industry analysts is that the U.S. has too many hubs, and that complex fleets cost airlines too much money in parts, maintenance and crew training. But Delta's leadership just spent its "Investor Day" (subscriber-only story) essentially arguing that neither is true when it comes to the combination of Delta and Northwest.

    Delta and Northwest promised politicians and communities in the run-up to their merger that they would not close any of their hubs, and so far they have kept their word, although they have done some hub downsizing. At Delta's Investor Day, the airline's leadership explained its hub strategy, which still entails keeping them all.

    Instead, Delta said it is making scheduling changes to try to prevent its various hubs from competing directly with each other. For example, its previously announced cutbacks in Cincinnati flights (from about 300 flights per day to about 260) include changing the timing of the schedule in early 2008 to create unique traffic flows that will not directly compete with its Detroit hub. Flights to Buffalo, for example, will be at different hours at the two hubs. Similarly, Delta is eliminating East-bound flying from Memphis that competes directly with Atlanta flights and adding some service to secondary Texas cities instead.

     "We’re going to do that over and over again, taking these hubs that on paper look redundant and use them to enhance each other rather than compete with each other," said Glen Hauenstein, Delta's executive vice president for network planning and revenue management.

    The key question here: Is this brilliant strategy or wishful thinking to justify keeping more hubs than it needs?

    The same question might be asked regarding fleet types: With Delta's acquisition of Northwest, it has a lot. The general analyst thinking is that simpler is generally better when it comes to fleets, although the global and diverse network of carriers makes the single-fleet type plan of many low-cost carriers unfeasible for carriers such as Delta. But Delta spent its Investor Day arguing that having so many fleet types is a good thing.

    CEO Richard Anderson did say simplification will be the airline's “ultimate goal,” but clearly it is in no rush. Instead, Anderson and other Delta leaders spent the day extolling the advantage of the fleet diversity to “right-size” the aircraft with the various markets in its vast network. Anderson described the fleet diversity as a "blessing" when it comes to revenue, and Hauenstein boasted that "no carrier has more flexibility with its fleet gauge than Delta."

    There is, come to think of it, yet one more way Delta was contrarian at its Investor Day regarding fleet types. It argued for the cost benefit of its MD-80s, which most airlines have been eager to ditch as gas guzzlers, because of $3.5 million in "ownership cost" savings on one of its owned MD-80s compared to purchasing a new Boeing B737-800 as a replacement




    Tags: tw99, Delta, fleet, hubs, MD-80, Detroit, Cincinnati, Memphis

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