This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
It pays to go premium. That’s the clearest lesson from Delta’s (DAL) strong performance this quarter, which came with the remarkable but not surprising forecast that most of its business will come from corporate and premium seats, overtaking economy fares, by 2027.
Nobody needs to wait that long to figure out what is in so many ways right in front of us. The business of never-ending add-ons and luxury adjacency is the supply to consumers’ robust demand for more — amenities, comforts, and indulgence.
But as airlines make so clear, in segregated physical spaces, not all consumers can afford to buy into the aspirational lifestyle.
Delta’s successful shift to premiumization reflects broader economic trends and underscores one of the biggest stories of the post-pandemic era and of the year: the K-shaped economy.
Delta’s latest earnings report, which lifted shares by 4%, highlighted the bifurcation between affluent and price-conscious consumers. Continued growth for its higher-tier products reinforced the company’s strategy to prioritize premium features at a time when consumer spending habits and the labor market show signs of splitting and straining. (Rival United Airlines (UAL) also rose 3% on the news, which coincided with an expansion of international flights to cities in Europe.)
The premium business — including fares in the Comfort Plus and Delta One cabins — grew 9% compared to the same period last year. And loyalty revenue from Delta’s SkyMiles program also improved 9%. Its credit card partnership with American Express generated $2 billion this quarter, up 12%. (The healthy figures coincide with an escalating perks war among credit card issuers on the hunt for deep-pocketed customers.) Spending on co-branded credit cards surged by double digits. Meanwhile, main cabin ticket sales fell 4% for the quarter.
“Most of our growth, if not almost all of it, will be in the premium sectors,” said Delta president Glen Hauenstein on a call with analysts Thursday.
Delta views its premium business as a key driver behind profitable growth and margin expansion.
“When you think about what’s different and what’s changed over the last 10 or 15 years, the premium products used to be loss leaders, and now they’re the highest-margin products,” said Hauenstein.
Something the entire business world — and market — will be considering.
