Both Delta Air Lines and United Airlines have reported Q3 earnings, and both have reported strong earnings. Delta reported an 8.9% operating margin, while United reported 10.5%.

The week's story was the strength of being a premium network carrier. Indeed, those results clearly show strength in the premium network space.

But where, exactly?

For both airlines, revenue was up, but expenses were upper.

Fuel costs were down 10% — a nice tailwind for the quarter. Employee costs were up 10% - a very sticky headwind for the decade.

Yields dropped in every market sector, domestic and international (except the Africa, Middle East, and India region for United, which saw a 9.8% jump in yields on a 35.7% drop in revenue due to Russian overflight restrictions and a cessation of flights to Israel).

While the airlines all break out passenger revenue changes by region, only Delta breaks out revenues by type—for instance, economy ticket revenues versus premium ticket revenues. Delta saw a 5% drop in main cabin revenues but a 4% boost in premium revenues.

But Delta further breaks down revenue numbers to separate loyalty revenues, both those booked as revenue straight into the loyalty and those loyalty “revenues” released as a part of points redemption.

All airlines have them. Delta breaks them out.

Which allows us to ask the following: is Delta a profitable airline?

Put another way, does the money taken in from flying people and cargo exceed the cost of flying said people and cargo?

The answer is no. Not even close, really.

The “airline” portion of Delta Air Lines runs at about a 10% loss. However, adding in the $2.6 billion of loyalty, travel services, and miscellaneous revenues, the company runs at a 9% profit.

(Refinery and ancillary revenues and expenses were both excluded for consistency).

Of course, the other revenue that makes Delta quite profitable is entirely enabled by the operation of an airline. There are no shenanigans at play. Remember, too, that Delta is likely no different than other airlines. It’s the only one breaking out the numbers.

However, based on the traditional definition of transporting people and things by air for money, Delta is not a profitable airline.

Delta is a very profitable loyalty company.

Now consider the challenges on the other end of the market. Airlines without deep international reach, opportunities for upgrades, and close ties with big credit card companies face a loyalty system that is “funding” otherwise unprofitable airlines — what do you do? The big guys are literally printing their own currency.

Consider this: During the past 12 months, Delta’s total loyalty revenues, both from selling and redeeming SkyMiles, totaled $7 billion. The GDP of the country of Barbados was $6.8 billion.

Delta currently has a total liability of $8.7 billion in deferred loyalty revenue — effectively the amount of SkyMiles in circulation. There are about $10.6 billion worth of Swedish krona in circulation.

Creating and moving made-up points is quite a profitable business. Moving people for money, not so much.

A chat with Jochen Schnadt, CEO Fly4 Airlines

Our latest Time on Wing podcast discusses the business of network planning and ACMI flying with Jochen Schnadt, CEO of Fly4 Airlines.

Every once in a while I get to nerd out talking about the metrics of the airline industry and how they are likely to affect its future. This was one of those times.

This was my first time meeting Jochen, but I have a feeling we'll end up sharing many hours over drinks and industry discussions in the future.

Listen to the podcast: https://www.timeonwingpodcast.com/2127612/episodes/15918690-jochen-schnadt-ceo-fly4-airlines

For the multi-taskers, you can watch AND listen: https://youtu.be/g3pmuE-Nosg?si=L2B3TfhohUpQJhio

Our research published this week:

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