A sharp rise in fourth-quarter maintenance costs didn’t keep Delta Air Lines from reducing full year-over-year maintenance expenses, despite growing its fleet—a notable achievement for a carrier that minimizes new aircraft expenditures in favor of squeezing the most out of its older airframes.
Delta’s fourth-quarter maintenance expenses grew 18% to $415 million, a jump that executives tie to a higher percentage of scheduled airframe heavy checks in an otherwise routine quarter. The annual results bear this out: despite ending the year with 26 more mainline aircraft—or 743 total—Delta’s full-year 2013 maintenance costs fell 5% to $1.85 billion, and executives see little change in 2014.
“As you look at 2014 versus 2013, I think the operations team has done a phenomenal job and we expect maintenance expenses to be up slightly to flat for the year,” says CFO Paul Jacobsen.
Delta makes no secret about its strategy of investing in select older aircraft in lieu of spending money on comparable newer ones. Among the big four U.S. carriers (counting American and US Airways as one), Delta has the highest average mainline fleet age, at 17.3 years, the Aviation Week Intelligence Network (AWIN) Commercial Fleets database shows. No other carrier’s fleet averages above 14 years. Delta also has the smallest order backlog, at 178 aircraft—more than 130 fewer than the next-smallest order book, which belongs to Southwest Airlines.
Delta’s approach is selective. The carrier this month retired its last DC-9-50—the last DC-9 in U.S. domestic passenger service—and last quarter began integrating the first of 88 ex-AirTran Boeing 717s it is leasing. Its 2014 plans will see its mainline fleet grow by 30 total aircraft, including a mix of new Boeing 737-900ERs and leased 717s. Retirements include some 757s and older 737s.
Meanwhile, a notable chunk of its recently unveiled 225-aircraft, $770 million cabin refresh initiative will go into airframes delivered a decade or more ago. For instance, 69 Airbus A320s in line for new seats and other upgrades have an average age of 19 years, the AWIN Fleets database shows, while the 57 A319s being re-worked average about 12 years.
Delta has some firm, aggressive long-term goals, including annual operating margins in the low double-digits and pre-tax earnings per share growth of 10-15%. One key to meeting its financial targets is keeping unit cost growth below 2%—a tall order, considering its reliance on older, more maintenance-hungry aircraft.
Parking about 80 50-seat regional jets will contribute the lion’s share of $250 million in avoided maintenance costs in 2014, the carrier says, while proactive maintenance investments elsewhere will target keeping other costs both predictable and low.
“I think Delta has a firm, specific capability and knowledge that’s unusual among global airlines in the sense that we have a deep capability to operate a large and diverse fleet with the very best reliability in the industry,” says Delta CEO Richard Anderson. “And that is a strength that we will continue to leverage because it gives us the ability to take 717s and MD-90s at much, much lower capital costs [and deliver] much higher levels of customer satisfaction and superior operating performance to all of our competitors.”