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Delta, The Airline on top of Their Game in 2012
As we take a look at the year in review for the airline industry, 2012 saw Atlanta based Delta Airlines making some dramatic business decisions. The first came in April as the airline announced it had purchased an oil refinery in Pennsylvania with the long term goal of producing jet fuel. The decision to purchase an oil refinery isn’t a common practice among airlines. In fact, it’s unheard of and risky. However, analysts are predicting that Delta might be on a fast track to becoming completely self-sufficient in the near future. “Acquiring the Trainer oil refinery is an innovative approach to managing our largest expense” said Delta CEO Richard Anderson in a recent Economist.com article. Not only was this a positive business decision for Delta but the move also saved the jobs of the refinery workers. In return, the state of Pennsylvania is providing $30 million in assistance.
The year also witnessed Delta reaching out to one of their biggest competitors in the domestic market. Southwest Airlines agreed and recently finalized a deal with Delta to lease all 88 Boeing 717 airplanes Southwest had acquired from their Air Tran merger. The reasoning for the purchase was simple. Delta currently operates a fleet of gas guzzling, aged out McDonnell Douglas DC-9s which came with the Northwest Airlines merger. The airline will retire those sometime later in 2013. In addition, Delta will begin to take back many of their domestic routes contracted out to their regional airline partners by flying those routes on some of the 100 seat 717s. In addition to the 717 agreement, Delta also firmed up an order with Boeing to purchase 100 737-900ER jets. This order was likely made to replace Delta’s aging, fuel ravaging McDonnell Douglas MD-88 aircraft.
With regards to Delta’s regional airline business, in September of this year, Delta recently cut their ties with long time regional partner, Comair. The airline flew short routes for Delta out of many of Delta’s domestic hubs, primarily out of Cincinnati, Ohio. This move came as Delta is planning to eliminate the use of their 50 seat regional jets which has shown to produce very little profit for the airline compared to how much fuel the small jets use. On December, 6th the airline agreed on a deal with regional jet manufacturer Bombardier to purchase 40 of their Next Generation CRJ900 regional jets in order for the airline to replace the less profitable and less fuel efficient 50 seat regional jets and to expand on the use of the more fuel efficient 76 seat jets. The airline has not yet selected which regional partner will fly the new planes.
In a recent unexpected move, Delta purchased 49% of Virgin Atlantic stock from Singapore Airlines at a bargain price of $360 million, ultimately paving the way for the airline to have more access to London’s Heathrow airport. Virgin Atlantic is the second largest carrier out of Heathrow next to British Airways. The new joint venture will allow Delta and Virgin to share revenues on routes flown between Britain and the U.S. In 2012 Delta also gained more access in the South American markets through acquired stakes with Mexican carrier, Aeromexico and Brazil’s Gol Airlines.
Delta has come a long way since their 2005 bankruptcy which left the airline on the verge of collapse and a near take over by competing legacy airlines, U.S Airways. The airline is growing quicker than any other U.S legacy carrier and continues to grow their presence worldwide. Their consistent innovation and thinking out side of the box business model could very well be a precursor for success. The other legacy carriers may want to follow their lead.