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As Airlines Report Profits, Focus Moves to Controlling Capacity

Delta and United have just reported extremely strong profits for the second quarter, a fact that was especially surprising for United, which many thought was going to be liquidated by now.  While I prefer not to talk about financials (there are plenty of other places to read about that).  I just wanted to point out that network carriers’ continued profitability really rests on whether they can control capacity growth (or control the impulse to add capacity when things get good).

United has said that it will not add capacity, as it is enjoying pricing power for the first time since, roughly, the Wright Brothers.  Delta, though, has said it will add 5-7% in the 4th quarter to make up for a huge drop in capacity last year.  I will not be shocked in February when we hear that Delta did not quite have the fare increase it had hoped because of that added capacity, but we’ll see.

Also noteworthy along those lines is that Delta has no planes on order for 2011 and said (like Allegiant) that it will try to purchase MD-90s when they can for use primarily in their Minneapolis hub.  As international airlines are announcing significant aircraft orders this week, it’s extremely financially prudent to hear that Delta is focused on picking up older planes that make sense for their route network (plus they’re good for passengers, with only 1 middle seat per row).  This type of restraint is something we really haven’t seen in the past, and I hope it’s a sign of a new way of managing growth during profitable periods.  This would contrast with the unbridled spending airlines have typically shown when things get good.

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