2016 could be the peak for core delta profitability. This is exactly why they have pursued the "virtual merger" strategy. The investments in global network carriers will continue to bring revenue and profits as they expand the industrial model. Virgin Atlantic greatly improved profitability after the Delta team engineered their turn around. The same is happening at GOL now. Aeromexico has announced expansions since the initial Delta investment. Delta also bought 10% of the H shares of CEA.
The corporate profit margin may stay about the same but with this corporate expansion comes more profits. Management needs flexibility to assign flying to code share partners to drive the turn arounds at these partners.
Maintaining a 18-20% profit margin at Delta has been sustainable minus one time expenses like hedge losses and the potential lump sum retro payments. The PRASM adjustments are cyclical and will track market fuel prices and inflation. As fuel becomes more expensive ULC carriers are squeezed so capacity will be continuously adjusted to optimize revenue.
Profits will continue to grow but not from the usual sources. The 20% profit margin is impressive and likely near the limit. The corporate profit will grow from the increased size of the company. Delta operations are at or near maturity.
Last edited by notEnuf; 11-25-2016 at 09:48 AM.