Delta Air Lines Inc. is making a stronger play for China, despite lacking a nonstop flight to the country from its home city of Atlanta.
New CEO Ed Bastian said in a Bloomberg interview that the airline foresees shifting focus from Tokyo to Shanghai, its likely future Asia hub, as the city grows as a regional financial center and the country’s massive internal population grows ever more internationally mobile.
“I think long-term we’re moving a lot of our Asian center of operations from Tokyo to Shanghai, and it should be the hub of the future,” Mr. Bastian said.
In March the airline hired Wong Hong, an aviation industry veteran, as vice president for Greater China, a region including Hong Kong and Taiwan. He is based in Shanghai.
“We’re spending a lot of time on the ground in China,” Mr. Bastian said.
Delta has already taken a minority stake in China Eastern, a SkyTeam partner, and provides international connectivity for its domestic passengers connecting through Shanghai on a codeshare basis. Mr. Bastian didn’t rule out the possibility of a joint venture like the airline has employed with Air France-KLM in the transatlantic market, or taking a larger share in its partner, as it has done with Brazil’s Gol, Aeromexico and U.K.-based Virgin Atlantic.
Capacity in the U.S.-China aviation market has exploded in recent years, and Delta has been one of the primary contenders for new service, building up Seattle as it primary jumping off point for Asia flights from the U.S. It’s currently battling it out with American for a new Los Angeles-Beijing route that will be awarded by the U.S. Department of Transportation. Next year should be the largest on record for U.S.-China air traffic flows, Mr. Bastian told Bloomberg.
But that growth could slow over the next few years as the low-hanging fruit disappears and regulatory capacity caps kick in, he said. Mr. Bastian hopes for an eventual “open-skies” pact that would remove restrictions on routes between the countries.
In the meantime, it will take time to enhance the current profitability of the routes, especially given the expense of allocating planes to these long-haul routes.
“It’s a little difficult because the cost of the airplanes that we fly between the U.S. and anywhere in Asia, not just in China, it’s an incredibly expensive investment, so that’s going to modulate the level and growth over time,” he told Bloomberg.
Mr. Bastian’s statements came in a wide-ranging interview that voiced concerns over the state of the global economy, with a pall of uncertainty cast by “Brexit” discussions, terrorism and what he sees as unfair competition from some global carriers.
The airline is embroiled in a public-relations battle with three Persian Gulf carriers it says unfairly use state subsidies to compete on international routes. Delta has called on the DOT to review open-skies agreements with the United Arab Emirates and Qatar.
“You’ve got three small countries, or cities really in the Emirates and Qatar, that have a total population mass the size of Rhode Island yet they have more international wide-bodies on order than the entire U.S. industry and the entire Chinese industry put together. How are they not subsidized?”
He said the airline would weigh trimming capacity in some markets given rising oil prices but overall that long-term growth would come from overseas.
“You know, the U.S. industry is largely a mature industry,” Bastian said. “There’s growth in this industry but there’s not new cities, there’s not new markets, there’s not new airports really being constructed. So if you’re going to look to grow in the future it has to be outside of the U.S.”
On terrorism, which has dented demand for air travel in Europe, he said the airline has a duty to continue connecting people while ensuring their safety. One of the bombs in the Brussels airport attack in March exploded in front of the Delta check-in counter. The airline said Wednesday that it would start Brussels service again in 2017.
“This is an industry that brings people together, that unites people, that makes opportunity available that doesn’t exist at the present time, and we’re not going to let the forces of evil deter us from our long-term goals and our long-term vision,” Mr. Bastian said.
Beyond Europe, Mexico, China and Brazil are all key markets, where partnerships allow Delta to feed travelers into its vast domestic network in the U.S., he said.
The airline has been able to generate an average 10 percent price premium per passenger, partly due to its reliability and connectivity, but increasingly thanks to the customer experience, he said, adding that Delta is working to become the preferred carrier for global business travelers with improvements to its Delta One product for long-haul passengers.
Ultimately, he said, Delta’s people and the airline’s service culture will make the difference, he said.
“Everybody has the opportunity to buy the hard goods,” he said. “Our opportunity is the ‘soft goods.’ … That’s the one thing in this business that you can’t replicate. You can’t replicate the people.”
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