Delta Air Lines, Inc. (DAL), Southwest Airlines Co. (LUV), JetBlue Airways Corporation (JBLU): Is Big the New Small in the Airline Industry?

Page 1 of 2

Throughout the 1990s and early 2000s, the U.S. airline industry experienced a dramatic shift as smaller planes – so-called regional jets – became a prominent part of the domestic fleet. Many of these regional jets had 50 or fewer seats, and allowed the large network carriers to offer relatively frequent flights to small cities throughout the country. In most cases, these regional jets replaced larger “mainline” jets that had previously done that flying.

However, skyrocketing fuel prices and labor costs have significantly changed the calculus for airlines in the past five years or so. Small regional jets have become uneconomical, leading most network carriers to reduce their reliance on them: Delta Air Lines, Inc. (NYSE:DAL) has been leading the way in that movement. Even small mainline aircraft are becoming less fashionable. Furthermore, airlines are finding ways to add more seats to the ones that do remain in service.

Delta Air Lines, Inc. (NYSE:DAL)

The increasing trend toward “upgauging” is beginning to improve the cost structures of many airlines, improving profitability. Yet the medium-term outlook is not as rosy. Even though most airlines are keeping their fleet sizes flat, the industrywide shift to larger aircraft will add a lot of new seats to particular markets. This is likely to create a long-term drag on unit revenues that could outweigh the cost savings and hurt future profitability.

A sea change in the air
The move to larger aircraft – and the addition of extra seats on existing aircraft – is almost universal in the U.S. airline industry today. For more than a decade, Southwest Airlines Co. (NYSE:LUV) was only buying one airplane model: The Boeing Company (NYSE:BA) 737-700, configured with 137 seats. However, in late 2010, the company converted part of its order to the larger 737-800, outfitted with 175 seats. The 737-800s began arriving last year, at which time Southwest Airlines Co. (NYSE:LUV) also began a project to add six seats to most of its 137-seat aircraft.

Southwest Airlines Co. (NYSE:LUV) took delivery of 34 737-800s in 2012, and has firm orders for another 44 737-800s through the end of 2014, plus the option to upgrade other future 737 orders to the 800 model. These 175-seat planes will add significant capacity to some routes, as they replace older Boeing 737-300 aircraft with 137 seats, as well as AirTran’s fleet of 88 Boeing 717s, which have only 117 seats.

The AirTran 717s, in turn, are being leased to Delta Air Lines, Inc. (NYSE:DAL) beginning later this year. Delta Air Lines, Inc. (NYSE:DAL) will use some of these planes (which will be reconfigured to have 110 seats) to replace similarly sized DC-9s that are retiring, but for the most part they will replace 50-seat regional jets.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!