Delta to Prioritize Global Expansion Over Domestic Transactions
(Bloomberg) — Delta Air Lines Inc. Chief Executive Ed Bastian said he will focus on expanding abroad through partnerships rather than consolidation in the U.S. aviation market as high fuel prices and transaction-oriented management continue to shake the domestic industry.
“If opportunities come your way, you will take them, but we will not be proactive,” Bastian said in an interview in New York on Monday. “Unless there’s a significant business logic that can stand the test of time, it’s really hard to consider undertaking such a meaningful change in business strategy just because there’s a window in Washington.”
Bastian acknowledged that the political reality in the United States lends itself to transactions that would not otherwise be possible, saying “this administration is very open to evaluation.” American Airlines Inc. Scott Kirby, CEO of United Airlines Holdings Inc., which advocated the idea of merging with , also adopted the same view; however, this agreement was met with political resistance and fierce opposition from American Airlines.
Bastian declined to comment on the possibility of a merger between two of the four largest U.S. airlines.
A potential industry shakeout is playing out against the backdrop of rising fuel prices that are eroding airlines’ profitability and weakening those already struggling. Spirit Airlines has already been forced to cease operations, but Bastian said the ultra-low-cost carrier’s problems began before the increase in fuel costs.
For now, Atlanta-based Delta is prioritizing international expansion and adding routes, including direct service to Riyadh in Saudi Arabia. The company is also expanding into India through a partnership with IndiGo, relaunching flights to Hong Kong and strengthening its presence in South America and Mexico.
“This is where we are more interested in investing,” Bastian said. “It’s not about which piece of the shrinking pie you want to take. It’s about how you expand, how you grow and how you get more international attention for your brand.”
Delta has been more protected against the effects of higher costs because the company appeals to wealthier customers who are more willing to pay rising ticket prices. Delta will need to absorb significant costs as fuel prices remain high for longer and airfares rise 10-15% for the quarter. Bastian thinks the airline should absorb about half of the rising fuel costs.
As a result, consumers could see six months of higher ticket prices, Bastian said. Even so, high-spending consumers are still eager to make money on travel, and that’s reflected in bookings, Bastian said. He also said some travelers book early in hopes of getting a better price.
That resilience is partly why Delta has been able to generate more than $1 billion in profits this quarter, Bastian said, and its premium offerings and strong balance sheet will help it through any financial turmoil.
“It doesn’t matter if there is geopolitical conflict, it doesn’t matter if there are trade wars, people don’t stop,” Bastian said.
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