Delta Air Lines in the express business?

Over the last year there has been much talk by the integrators of customers shifting down from high-speed, high-price products. Next-day instead of overnight. Deferred instead of Next-day. Ground instead of air. Coping with this shift has been the motivation behind FedEx’s much publicized “this is not a restructuring” program. At the Cargo Facts Asia event in Hong Kong this spring, FedEx Asia boss David Cunningham said one of the steps FedEx planned to take was to shift some of its low-yield traffic from its own fleet into the bellies of other carriers’ passenger aircraft.

Delta Air Lines CEO Richard Anderson confirmed that the shift is now well under way, and that Delta is one of the beneficiaries. When Mr. Anderson spoke at the recent conference of the Society of American Business Editors and Writers in New York, Cargo Facts publisher JJ Hornblass had the opportunity to ask him several questions about the cargo side of Delta’s business, starting with a request for his thoughts on the cargo business in general. Anderson was quick to respond that while cargo only generated some 2.5% of Delta’s revenue ($1 billion out of $40 billion) it was very profitable. He added that one area of growing importance was the increasing volume of deferred (2-day and 3-day) freight coming from FedEx and UPS. No doubt other passenger carriers are seeing more business from the two big integrators, but this is the first confirmation we’ve heard.

When asked why, if cargo was important, Delta had moved to retire all the freighters in the Northwest Airlines fleet following the Delta/Northwest merger, Mr. Anderson (who had earlier been CEO at Northwest) pulled no punches: “Main deck freighters make no sense. It is impossible, You better shut it down or you’re going to lose your shirt.” While we don’t disagree that there is no place for freighters in Delta’s business model –Delta earns just 2.5% of its revenue from cargo, after all – we point out that carriers who earn a larger portion of their revenue from cargo may see things differently.

He had a few zingers for other questioners, as well. When asked why Delta had shown no interest in the A380, he responded that “the A380 is an uneconomic aircraft unless you are a government-owned or -subsidized airline with ExIm bank financing. The A380 is only saleable when government provides financing. The same goes for the 747-8.” And on the subject of why Delta operated so many different aircraft types when other carriers were moving toward fleet commonality, he replied: “We love fleet complexity.” He went on to point out that older aircraft were not a problem for Delta, which has one of the biggest MROs in the industry in Atlanta, “and those Georgia boys, they sure know how to fix an airplane.”

 

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