Leigh Miller for GlobalAtlanta
U.S. Airways would need to invest an additional $30 billion on top of its $8.6 billion bid to acquire Delta Air Lines Inc. in order to continue its international expansion, according to Rajeev Dhawan, Georgia State University’s chief economist.
Phoenix, Ariz.-based U.S. Airways, which made an offer on Nov. 15 to buy Atlanta-based Delta, would need to replace Delta’s entire fleet, worth $30 billion, over the next 10 years in order to continue opening international routes, Dr. Dhawan told GlobalAtlanta.
“U.S. Air does not have many international routes. That’s the reason they want to buy Delta,” he said. “Whichever company ends up controlling Delta will have to replace its old planes and buy more big ones to service the international flights.”
But Delta may be looking to the wrong international routes for increasing its revenue, Dr. Dhawan said. In an analysis, he found that the rate of revenue generation acceleration over time is greater for Latin American routes than for trans-Atlantic, which is where Delta is opening most new flights.
Still, Delta’s revenues from international operations rose more than 18 percent in the third quarter 2006 from the same period last year, while its domestic fare revenue increased only 3 percent, he said.
While Delta has 31 percent of its airplane seats available for international flights, which is more than U.S. Airways’ 19 percent, it still lags behind Continental and Northwest airlines, which have 47 and 41 percent, respectively, according to Dr. Dhawan.
New international routes will require more and newer planes, he added. Delta’s 120 long-range planes for trans-Atlantic or Pacific flights are fully occupied, and its planes’ average age is 10.5 years, almost double that of Singapore Airlines, for example, he said.
To continue its international expansion, Delta must replace its entire fleet over the next 10 years, Dr. Dhawan asserted. Not only because the planes are old, but with soaring fuel prices, the airline should consider replacing its “gas-guzzling” planes with more fuel-efficient ones, he said.
Some 45 of Singapore Airlines’ 90 long-range planes are newer, more fuel-efficient Boeing 777s, and the airline’s average plane is only six years old, he noted. Its pending orders for more fuel-efficient Boeing 777s, Airbus A-830s or Boeing Dreamliner 787s would replace Singapore Airlines’ whole fleet in the next five years, he said.
While Singapore Airlines keeps its trans-Pacific flights full, Delta does not currently have enough Boeing 777s nor any 747s that can make long nonstop flights to Mumbai, India, and Beijing, Dr. Dhawan said.
Delta will also face competition for Pacific routes from British Airways, Cathay Pacific Airways, Malaysian Airlines and Thai Airlines, which are reputed to provide superior service, he added.
“None of us has ever traveled on Delta for more than 10-11 hours — they don’t have any flights from Atlanta that are longer than this — so we don’t know how they would perform on longer routes,” Dr. Dhawan said.
If U.S. Airways acquires Delta, service aboard international flights is not expected to rival that of international air carriers. “They need big planes and a great crew. But none of the American airlines are known for their service anymore,” he said.
For more information, contact Dr. Dhawan at (404) 751-3298 or visit www.robinson.gsu.edu/efc.