As reported in a recent Business Travel News article, Delta has announced that they plan to cut international capacity by 3 percent in response to the strengthening US dollar and decreased demand in certain markets that owes to lower oil prices.

On a typical day, Delta operates approximately 148 international flights from the United States, with a seat capacity of almost 24,000.  A 3% reduction in capacity would amount to about 720 seats, or the equivalent of almost five flights.  This is in addition to the 27 flights and 8,800 seats operated by its various Joint Venture (“JV”) partners (Air France, Alitalia, KLM, Virgin Atlantic and Virgin Australia).

In that context, we would view a 3% reduction as a fairly minor tweak rather than a wholesale change.

In Delta’s presentation about the adjustments, they specifically mentioned reductions in capacity to Tokyo; however, that needs to be put into the context of their build up in Seattle, where they are bypassing Tokyo and flying non-stop to Shanghai, Beijing, Hong Kong and Seoul, and generally doing so with somewhat smaller A330s versus the B747-400s and B777s that they operate through Narita.

Delta operates about 60% as many seats on 55% as many flights as the combined American/US Airways; 90% as many seats on 87% as many flights as United. So, they are definitely in a position where they do need to be careful about reducing capacity and ceding business to their competitors.  (These figures exclude JV partners, when they are included for each of the JVs, Delta operates 62% as many seats on 56% as many flights as American and its partners and 66% as many seats on 45% as many flights as United and its partners).

All of the airlines have been relatively disciplined in managing capacity since each of their various mergers (Delta/Northwest, United/Continental and American/US Airways).  The exception to this occurs where they have “filled holes” in their international route networks, ex. – Delta and United expanding service into Latin America and American expanding its own service into Asia.

While capacity reduction may negatively impact corporate travelers in certain situations, an emerging positive trend is the increased comfort and service levels across all major carriers as they invest in the upfront cabin.  Those amenities do come at a cost, with a full fare round-trip business class fare from Minneapolis to Shanghai coming in at almost $18,000 including tax and tip, and pushing $20,000 between Atlanta and Hong Kong.  Of course, with a little advanced planning, flexibility on travel dates and good corporate discounts, those fares can be reduced by 75% or more.  Advanced planning and flexibility are becoming increasingly important in corporate programs that provide for business class travel, where 50-day advance purchase fares, combined with mid-week travel can achieve significantly more savings than a typical full fare discount. While those fares do have penalties and restrictions, the corporate market is mimicking domestic travel where few travelers buy $2,000+ Y class tickets when they can purchase seats on the same flights for a few hundred dollars.