Delta bets on upgrades to lure new customers

Reuters

By Karen Jacobs

ATLANTA | Thu Mar 17, 2011 6:18am EDT

ATLANTA (Reuters) - Delta Air Lines Inc (DAL.N) may no longer be the world's biggest airline, but it's spending big in an effort to become a premium brand.

The airline is investing more than $2 billion through 2013 to upgrade plane seats, refurbish airport facilities and expand in-flight entertainment options to win new passengers and entice existing ones to spend more.

"People pay more for Mercedes than they do for Hyundais," Glen Hauenstein, Delta's executive vice president for network planning and revenue management, said in an interview.

"What we're trying to create is this higher-end product that people are willing to pay for."

There are no plans to scale back the spending even as fuel costs rise. "As a matter of fact, we're doing them as fast as we can," Hauenstein added.

The executive declined to comment on Delta's business in Japan following the earthquake. The company said Wednesday its Tokyo flights have not been cancelled and that operations were continuing as normal.

With the 2008 purchase of Northwest Airlines behind it, Delta is making investments to give flyers a good-better-best selection of product offerings, depending on their budget.

Delta is adding lie-flat seats to its first-class BusinessElite section for international routes and refurbishing U.S. airport lounges with full-service bars and new artwork. On U.S. flights, inflight Wi-Fi is being expanded to 223 Delta regional aircraft.

This summer, passengers on long international flights will be able to sit in a new Economy Comfort section with more legroom and seat recline for an additional $80 to $160 one-way.

Apart from the investments, Delta has made other changes to try to stand out from other carriers. This year, it eliminated the expiration of miles accrued under its SkyMiles frequent-flyer program. And Hauenstein said Delta has no plans to stop offering free complimentary snacks such as peanuts on its flights as some large U.S. rivals have done.

INTENSE COMPETITION

Henry Harteveldt, travel industry analyst with Forrester Research, said Delta's moves are designed to set it apart among consumers who can choose from airlines with similar products. United Continental Holdings (UAL.N) and AMR Corp's (AMR.N) American also have added lie-flat seats in recent years.

"Delta has an opportunity to compete for and win a lot of business from brand neutral or brand agnostic travellers," Harteveldt said.

Delta is mulling other upgrades longer-term. The company is talking to major plane makers this year as it considers ordering hundreds of new narrowbodies to fly U.S. routes.

As airlines merge, the battle for passengers is heating up. United Continental Holdings (UAL.N), which displaced Delta as the world's largest carrier after its 2010 merger, is looking to win international customers. Southwest Airlines' (LUV.N) planned purchase of AirTran Holdings (AAI.N) will bring new competition to Delta at its home base in Atlanta.

Terry Trippler, owner of travel website Airlinerulestoknow.com, said Delta is playing catch-up to some extent, as international terminals such as the one at JFK airport were long overdue for upgrades. But he added investing in the latest aircraft interiors on the market can give the carrier an edge, especially in attracting lucrative international travellers.

"Delta is going to be a real force to be reckoned with in the future," Trippler said.