Is Delta a well oiled machine?

How did the US carriers really perform beyond the headline numbers?

US airlines navigated through the pandemic years and emerged at the end of 2022 with stronger demand, higher load factors and less covid restrictions while trying to evolve with the directional shift of corporate and business travel decline. Some airlines such as American have made big bets on corporate travel recovery to never return to pre-pandemic levels.

This summer has seen strong international demand return for the top 3 US carriers, somewhat salvaging the revenge travel myth. There are significant headwinds in the back half of 2023 which each carrier must navigate through, varying from airline contract negotiations, inflation impact to higher fuel prices. The later is already driving airlines such as DL and Spirit to publicly state profit warnings for 2023.

The known headwinds are one element, the other are more unpredictable such as last years weather carnage which caused significant IT and operational meltdowns adding to the impact of already slimmed down staffing levels. Southwest made the headlines by cancelling nearly 15,000 flights.

There are allot of lessons from the last few years which should be heeded by the US carriers. There should be no shame in plagiarizing the well oiled machine that is Delta. Analysts have already dissected P&L's for all US carriers to derive the same conclusion, but I wanted to look at another 3 metrics for these airlines to see what other lessons need to be learned.

Operating Revenue

Delta led the pack by generating over $50 billion in operating revenue in 2022, with American and United following close on Delta's heals. Whilst that might be the high level headline, we should look at a few more metrics that help explain Delta's domination.

Revenue per aircraft

Another metric to look at is how much revenue each carrier is generating per aircraft. Keep in mind that American Airlines has the largest airline fleet of the top 10 US carriers. Here too Delta is performing head and shoulders above the rest. You would assume the largest fleet would generate the most revenue. Each Delta aircraft (902 aircraft) on average contributed $56 million in operating revenue even though it had a smaller fleet than Americans 968 aircraft. American lagged by nearly $5 million operating revenue per aircraft. Yet there are some other interesting comparatives here too. Southwest aircraft generated on average $30 million per aircraft which is lower than JetBlue who generated more revenue than Southwest whilst operating almost a third of the fleet.

Revenue per employee

This metric looks at how much revenue each employee contributed in 2022 based on their employee headcount.

American Airlines reported over 129,000 active employees at the end of December 2022. Again similar to the fleet size assumption, i would expect that the more employees you have the more revenue they would generate. Surprisingly each American Airlines employee contributed on average $372,000 of revenue in 2022, lower than Delta, Frontier, United, Jetblue, Allegiant and Spirit. The cost of revenue at American must be a worry for the leadership. No surprise that Delta leads this metric as well. Each Delta employee generated on average $532,000 of revenue in 2022 which is a staggering $154,000 more than every American employee generated. Southwest was adversely impacted by weather and cancellations last year and probably could have handled the incidents better in hindsight, which may be a big reason for Southwest to be holding the wooden spoon on this revealing metric.

Employees per aircraft

The last metric to look at which is revealing too is the ratio of employees per aircraft each carrier maintained in 2022. A high number would indicate the complexity of the airline and cost of revenue to be high. American Airlines had a ratio of 134 employees per aircraft, with it's largest competitors Delta and United at 105 employees per aircraft. This metric and the revenue per aircraft should be key focus areas for the American Airlines leadership in 2023 for sure.

So whilst we knew the answer before looking at these metrics, it does underpin what a well oiled machine Delta airlines has become by focusing on a strategy which was a winning one in 2022 and unless the competition figure out that magic formula, Delta could continue to dominate and innovate for years to come both domestically and Internationally.

Download the charts:

2022 Revenue Metrics.pdf

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