These are exciting times for those who recall that glorious era of US DoT route cases and that epically great time of Crandall vs Wolf. For the first time, in what feels like forever, there is a route case before US DoT with two US airlines competing for a limited frequency. The prize is Cape Town, South Africa. The city is frequently listed as among the world’s best travel destinations. According to SA Tourism and Wesgro, the US is South Africa’s biggest market for inbound travel, outstripping traditional markets like the UK and Germany.
Delta Air Lines and United Airlines are competing for the service. It is surprising that American Airlines is sitting this one out. It could make a strong case for Miami-Cape Town; a combination that would literally put all of North America behind that route, including the significant expatriate market in Canada. Besides a three-way case would seriously increase the spectacle value.
United has filed its case and Delta’s filing is imminent.
The US DoT Office of Aviation Analysis “…supports the development of the Department of Transportation’s public policies regarding economic oversight of the airline industry in domestic and international markets.” This is the office where the competing filings are analyzed.
What are the key drivers likely to include? There are four issues that should be focused on: demand forecast, connectivity, aircraft, and competition. Let’s look at each of these.
- Competition – service to Cape Town exists currently with United flying from Newark. This is limited and there is also competition via Europe. Essentially the competition is limited and new air service should considerably improve traffic flow.
- Aircraft – United currently utilizes a 787-9 to both Johannesburg and Cape Town. Delta utilizes an A350-900 to Johannesburg and plans to use the same aircraft to Cape Town. The A350-900 is larger with more seats and overall payload.
- Connectivity – Here we have IAD (United) versus ATL (Delta). United has made a strong case that IAD enables a lot of US connections possible. But, ATL, as the world’s busiest airport may look stronger. We’ll know when Delta does their filing.
- Demand – We left this for last because we have data to share on this item.
From past experience, we know that the US DoT only accepts its own data sources in cases. In terms of traffic demand, the T-100 (through Nov 2021) is the source to look at. This is what we discovered.
In its heyday, the US-SA market was around 230,000 passengers per year. Not really large. The demise of South African Airways (SAA) caused a big dropoff in traffic. Notice that although Delta was slowly growing its traffic, there is a sharp decline from 2020. This is because SA closed for a while during the pandemic. But, crucially, Delta retired its 777-200LR fleet. These were the only aircraft Delta had that could serve ATL-JNB. There was a big gap until it had the requisite A350-900 to deploy. In the meanwhile, United stepped in and grew its traffic sharply. This is one of the key points United makes in its filing – they have been more consistent than Delta.
There is a counterargument to be made here. If United and SAA are both Star Alliance members, why did they not start codesharing? Looking at the SAA traffic that was there for the taking, United never made the obvious move to codeshare with SAA and pick up the traffic. After all, we’re talking about over 100,000 passengers per year. Let’s see if Delta’s lawyers make this point.
Next, let’s look at the US origin market. Here we show the T-100 data by origin city. The Atlanta number certainly favors Delta. But New York traffic now flows over Newark. JFK was the principal SAA gateway. One cannot but wonder why SAA and United didn’t lock this up for mutual benefit? Next, we see Washington DC as the third big market. Clearly, this favors United.
Next, looking at freight we see some good business, too. The chart lays out the US-SA freight traffic.
The SAA traffic again jumps out. Although the volume declined over time, this may be because SAA moved from 747-400s to A340-600s. Even so, notice how United started to develop this business. Cape Town is an agricultural area, world-famous for its fruit and wine. The opportunity for high-value exports to the US can be exploited. Belly cargo value favors the larger aircraft. But, more importantly, having both United and Delta in this market ensures competition. That is good for Cape Town’s exporters and they should prefer to have both.
The competitive offers from Delta and United are going to be close and the selection of one may even lead to an appeal.
- United has been more consistent but did not fully exploit the opportunities it has through Star Alliance.
- Delta was probably caught off guard by United’s market entrance, then the pandemic caused an unplanned fleet retirement wave – leading to a fumble. But Delta potentially offers more seats and cargo.
- The case likely will revolve around IAD and ATL as connection markets. Focusing purely on Cape Town, it appears ATL is stronger.
- Finally, is the US travel market better served by having Delta and United both serve Cape Town? We’d suggest yes.
US DoT is unlikely to consider other items, but their selection does not happen in a vacuum. Here are some background items that they might consider.
- South Africa has run into another infrastructure problem – a shortage of ATC capacity. We have been advised the nation’s ATC management company announced a NOTAM downgrading upper airspace service to Class G (uncontrolled). Crews need to coordinate their own separation on frequency 126.9.
- Delta announced they have permission to serve ATL-JNB-CPT-ATL. According to South African sources, the South African Dept. of Transportation is unaware of this permission being granted.
- Delta has a commercial interline agreement with a local South African airline Airlink. However, how well known this is at Delta is unclear. Your correspondent recently contacted Delta for a flight to Cape Town over Johannesburg. The Delta agent said there is no local connection and any such booking had to be made separately.
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.