Delta Views New Terminal as Symbol of Modern Age of Air Travel

Rather than compete on the lowest fares — a race to the bottom over the last decade that just weakened them — the airlines are now seeking to lure passengers with better amenities and service. That new strategy points to the improving financial health of the industry, a turnaround that can be traced to both the string of mega-mergers among the big carriers and the industry’s single-minded emphasis on cutting excess capacity since the depths of the recession.

Delta, the first of the major carriers to go into a merger — with Northwest in 2008 — is also in the strongest position to reshape its goals. And the $1.2 billion investment in a new terminal in New York, which will replace two 50-year-old grim, 50-year-old and woefully inadequate terminals at the end of the month, is the latest and most visible sign of its new approach.

The airline has already been flexing its muscles. In the last two years, it has focused on improving its balance sheet as well as its operations, expanded its global partnerships, invested in airlines like Virgin Atlantic and even bought an oil refinery. On Wednesday, it said it would reward shareholders with $1 billion in quarterly dividends and share repurchases over the next three years.

“The airline industry has been broken for decades,” Edward H. Bastian, Delta’s president, said in a recent interview. “It was fragmented. People worried if the airlines were going to make it or if they were going to be bankrupt. Today, everybody has scale, customers have choices and people have seen that service matters.”

In this new world of fewer airlines and less capacity, airline executives hope to achieve a level of stability that has eluded them since the federal government deregulated air travel in 1978. While Delta’s merger is complete, more work remains on United Airlines’ merger with Continental Airlines and Southwest Airlines’ tie-up with AirTran. American Airlines and US Airways, which announced in February that they would merge, are just starting the process. But most have begun putting Wi-Fi and individual TVs aboard their planes, installing more comfortable seats for business passengers and investing in mobile technology that gives passengers more control over their travel plans.

Not all the changes have been welcomed by travelers. Airlines charge more fees than ever, requiring passengers to pay for services that were once free, including checking bags or booking seats with more legroom. These fees are also rising and account for a bigger share of the airlines’ revenues. In the latest of these, United increased its ticket-change fee to $200 from $150, a move that was matched by most airlines this month.

Airline executives argue that the industry needs to be profitable for service to improve. Fares have risen in recent years, but they remain lower than they were in the 1990s when adjusted for inflation.

Delta, which left its 19-month bankruptcy in 2007, has also been financially conservative, reducing capital expenses and using cash to cut debt. The carrier posted a net profit of $1.6 billion last year, up 30 percent from the previous year, giving it four years of rising profits despite high fuel costs.

The company said on Wednesday that it would start to pay a quarterly dividend of 6 cents a share and buy back $500 million of its shares in the next three years.

The airline also said it would continue to reduce its debt in the next three years, to $7 billion from $17 billion in 2009. In the next five years, it also plans to spend $2 billion to $2.5 billion a year on its fleet, airports and technology.

Paying a dividend is rare in an industry with losses of $60 billion in the last decade, although there have been exceptions. Southwest Airlines now pays a quarterly dividend of one penny a share, while Alaska Airlines and Allegiant Air buy back their own shares.

Delta’s shares rose more than 3 percent to $18.66 a share on Wednesday. They have gained 70 percent in the last 12 months, outpacing United and US Airways but trailing Southwest.

Hunter Keay, an airline analyst with Wolfe Trahan, said investors were looking at the airline industry with more interest since airlines merged and cut their combined capacity substantially.

“Delta is clearly establishing itself in a leadership role in terms of cash generation, returning cash to shareholders and profit margins,” Mr. Keay said.

Article source: http://www.nytimes.com/2013/05/10/business/delta-views-new-terminal-as-symbol-of-modern-age-of-air-travel.html?partner=rss&emc=rss