Delta expects big summer from Europe, worries about growing capacity

Delta Air Lines expects record profits from European travel this summer after a dip in trans-Atlantic sales earlier this year. Still, despite the optimistic summer outlook, Delta officials said the airline will examine its capacity in June for potential reductions in fall and winter.

Glen Hauenstein, the incoming president, pinned that concern on an abundance of flights from rivals in the Middle East and in Europe.

BOOKMARK: Go directly to the Today in the Sky homepage

U.S. airlines complain that Emirates, Etihad and Qatar airlines are unfairly subsidized by their government owners. But the foreign airlines contend U.S. carriers are simply trying to avoid competition while enjoying the advantages of bankruptcy law.

The U.S. departments of State, Transportation and Commerce are weighing whether to renegotiate aviation agreements with the United Arab Emirates and Qatar. While no answer is imminent to the long-running dispute, Delta officials told investors Thursday that a diplomatic solution is possible.

Delta beats profit estimates even as Brussels bombings hurt revenue

Delta scales back amid 'poor' demand in Alaska capital

“This is our No. 1 priority in Washington,” said Peter Carter, Delta’s chief legal officer. “We have reason to believe that the U.S. government is going to do the right thing. Having said that, because this is fundamentally a diplomatic process, it will take some time.”

U.S. airlines have also challenged flights from Norwegian Air because of labor and safety concerns about how the long-haul subsidiary was organized. Norwegian contends it is safe as it awaits a decision from the U.S. regarding its application to operate flights using an Irish-based subsidiary that would enjoy greater labor and maintenance flexibility. Norwegian has said it would expand in the USA regardless of the final decision of U.S. regulators.

Against that backdrop, Hauenstein said Delta’s trans-Atlantic revenue fell 6%, combined with a 3.5% reduction in capacity during January, February and March -- largely because of weak exchange rates of foreign currency.

Four questions for the next CEO of Delta Air Lines

The airline previously announced that the Brussels airport bombings March 22 had a $5 million impact.

But Hauenstein said U.S. ticket sales to Europe were strong and rebounded quickly after Brussels, and that Paris revenues improved after the terror attacks there in November. Demand from Europe has been softer because of the weak euro, he said.

To pinpoint his concerns, Hauenstein singled out Middle East carriers such as Turkish Airlines beginning nonstop service from Delta’s hub in Atlanta to Istanbul in the spring, and Qatar flying from Atlanta to Doha.

American vs. Delta: USA's next great airline rivalry?

“The Atlanta to Doha market is less than five people a day, so they’re going to need to fill up on some flow,” Hauenstein said. “We don’t think they’ll be successful, but that is capacity that we face here locally.”

In addition, ultra-low cost carriers such as Norwegian and also larger competition such as Air Canada are providing more European flights, he said.

“When you add all that together, you get a trans-Atlantic capacity increase in the high single digits, low double-digits through the peak summer season,” Hauenstein said. “Given the economic outlook for the United States and for Europe, we think demand will grow in the 4 to 5% range, so there is more capacity than can be absorbed by the increase in demand.”

Hauenstein “confidently” predicted Delta would have “record profits” from trans-Atlantic flights this summer. But then the airline will reevaluate.

“As we get to June, as we usually do, we’ll assess what demands we see in the off-season and then we will take the appropriate adjustments as necessary to ensure that we have the right level of capacity for fall and winter,” he said.