Delta Air Lines seems to be ending three routes to Tokyo’s Narita. Since Tokyo is a major market, the changes must be really noteworthy. Delta’s Japanese hub was created by Northwest Airlines. Recent changes to the US-Japan bilateral herald important developments.
The US and Japan agreed earlier this year to open Tokyo’s second airport, Haneda, to more US service. Since Haneda is closer to the city, it is popular with people who want to visit Tokyo, rather than transition to another Asian city. Delta has already presaged its Asia network changes by building Seattle as a hub. Delta has said it will stop JFK-Narita this fall and it also plans to stop service between Narita-Osaka and Narita-Bangkok. Delta is waiting for the DoT ‘s approval for two new routes: MSP and LAX to Haneda.
What do all these network changes mean for Delta? Apparently, quite a lot. “Without a significant network restructuring, Delta’s position in the region would be significantly weakened,” Vinay Dube, Delta’s senior vice president of Asia Pacific said. The reason Delta may be “weakened” is that it does not have a Japanese partner, unlike American and United. Mr. Dube also said Delta’s future strategy will be to do more nonstop flying between points in the US and Asia rather than hub-and-spoke flying.
Certainly these changes offer Delta an opportunity to revisit its fleet planning to best exploit the changed routes.
It appears that Delta will not move all its traffic from Narita to Haneda. That means Tokyo becomes a bifurcated market for Delta. Local traffic is flowed to Haneda. But connecting traffic keeps the Narita access. If that happens Delta will want to keep its costs down because serving both airports becomes expensive. So here’s a thought.
Haneda – focus is on O&D traffic, utilizing A330neo and A350. By offering a number of options, business travelers get what they like. Delta can also charge accordingly for the convenience. Haneda is separation restricted, so the A380 is not a practical option.
Narita – the key focus here is connecting traffic and exploiting regional Sky Team partners (China Southern & Korean Air) and the Delta fleet. In order to get the lowest costs possible Delta deploys A380s from the US. Possibly three per day with dense seating (550+ mainly premium economy and economy). Allow partners to cooperate on the capacity and potentially ensure Delta sets the fares for the market. This means Delta plays the strongest hand possible into Narita where it has no local partner. All its regional feed comes from at least 2.5 hours’ flight time away.
For Delta the big questions are:
- How important is frequency at the two Tokyo airports?
- Can the A380 become a competitive enabler for Delta into Narita? (We think it would need six A380s for daily service)
- What can Delta anticipate by way of partners buying space on the A380?
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I believe that Delta Air Lines – “A High Quality Company” – is committed to sustain an operating margin of ~15% (+), and a return on invested capital of ~20% (+). If its Narita services are consistently operating at margins below 15% and Delta doesn’t see a path towards achieving those objectives, I guess it makes sense to cancel the services. It will improve the average financial performance of the (high quality) company. Growth or market share are not strategic objectives of Delta, rather a stated objective is “Capacity Discipline – system growth below 2% annually.”
I suspect that those operating margins can more easily be attained domestically, and therefore Delta will slowly but surely dismantle its international network, effectively. It’s basically a consequence of the business strategy Delta has elected, the way I see it.
With longer range midsize aircraft such as the 787 and A350 becoming available, Narita is becoming less important as a transit hub, since US airlines can now fly directly to Asian destinations beyond Japan. United’s new nonstop flight to Singapore replacing a Narita connection, and the rapid expansion of direct flights between the US and Chinese cities are examples. Delta is waiting for its A350s, so it will probably follow that path as well when it has the equipment to fly the new routes.