Arlington, UNITED STATES: A Delta Airlines ground crew employee finishes the push-back of an … [+]
Delta Air Lines announced a 29% year-over-year profit decline in the second quarter. This trend is being felt throughout the airline industry as fares fall as the supply of passenger seats exceeds demand.
Concurrently, its Wheels Up private aircraft operation, purchased by Delta and a consortium of investors a year ago, had a $97 million loss in the first quarter, about on par with its loss during the same period in 2023. Wheels up never made money even before Delta’s rescue, and since its founding has racked up a $1.86 billion accumulated deficit.
Earlier this year Delta parachuted in its former chairman of operations and then sprinkled in an assortment of other v-p’s mostly with operations backgrounds. Earlier they made one of Delta’s Board of Directors members the CEO of Wheels Up.
While operations are indeed part of the overall profitability equation and Delta does have some previous experience with private jets, the Wheels Up fleet is comprised mostly of the King Air aircraft made by Textron Aviation.
The idea for this propellered turboprop was first hatched back in the 1960’s and was not originally designed with high frequency airline-type operations in mind. As such, scheduled maintenance events are frequent and time consuming. Its relatively slow cruising speed costs time and money to position an empty plane to pick up the next passengers.
Year-over-year revenues fell 44% at Wheels Up. Active members and revenue legs were both down 25% since the same period last year, and cash on hand was reduced by nearly a third to $180 million which at current burn rates could conceivably run out in the second half. Recent tweaks to improve the financials have included reducing primary flight coverage areas and fleet size, closing maintenance facilities and most recently, furloughing 11% of its pilots.
Another market challenge has been fewer private aircraft charter flights being flown in the US. With inflation and uncertainty, private flyers are reconsidering the value of their $20,000 New York to Palm Beach flight.
With Delta Air Lines Stock down 18% from its 2024 high, shareholders’ patience could be tested as resources and executive talent are diluted in an unprofitable, non-core business. While Delta’s perseverance has been admirable and there are likely more sources of outside capital if needed, without near-term meaningful financial improvement other avenues inevitably must be explored.
