The second largest U.S. airline, Delta Air Lines (DAL) will invest over $2 billion through 2013 on improving airport facilities and aircraft.
The aircraft improvements will include incorporating more seat recline and legroom in the economy section on long international flights, adding full-flat business class seats to over 150 international transoceanic aircraft, enhancing movie, music, game options on international and domestic flights. Moreover, the company will expand Wi-Fi to all two-class jets and install winglets to more than 44 aircraft to increase fuel efficiency.
In terms of developing airport infrastructure, the company plans to renovate Sky Club airport lounges for premium customers at U.S. airports and revamping international terminals at New York’s John F. Kennedy and Atlanta airports.
Further, Delta Air Lines remains focused on expanding its presence in New York by increasing the number of corporate customers, expanding and improving airport facilities as well as increasing services into and out of the city. The company is also introducing more services in Japan and Asia.
Delta is looking for alliances with Asian carriers to expand its route network in China that is expected to boost revenues from one of the world’s fastest growing travel markets. China is expected to be the biggest contributor of air travelers globally through 2014.
We believe the company’s global network, hub structure and alliances with other airlines enables it to offer customers an improved global reach compared with other domestic and international airlines.
However, in light of growing competition, Delta Air Lines faces significant pressure with respect to routes, services and fares from giant carriers like United Continental Holdings Inc. (UAL), American Airlines, a subsidiary of AMR Corporation (AMR), and US Airways Group Inc. (LCC).
The company faces significant competition at its hub airports in Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, New York-JFK, Salt Lake City, Paris-Charles de Gaulle, Amsterdam and Tokyo-Narita either directly at those airports or from the hubs of other airlines that competes on a connecting basis. In addition, it competes with foreign carriers for U.S. passengers traveling to international destinations, as well as between foreign points.
Currently, we maintain our long-term Neutral recommendation on Delta Air Lines supported by a Zacks # 3 Rank (Hold).
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