Delta Air Lines CEO Ed Bastian said on Saturday that the carrier’s revenues between the United States and China are up 25 percent so far in 2019, year-over-year, despite heightened trade tensions and data showing the number of Chinese visitors dropped last year for the first time since 2003.
“With respect to U.S. [and] China, we are not seeing a significant impact brought on by some of the trade and tariff concerns,” Bastian said during a briefing at the IATA Annual General Meeting in Seoul, a conference of airline executives. “It is our two largest markets in the world, the U.S. and China, and I think there continues to be strong commerce between our two markets.”
Bastian is the second U.S. airline CEO to share similar sentiments this week. On May 27, at the Skift Forum Asia in Singapore, United Airlines President Scott Kirby also downplayed the effect of the trade war on airlines, saying the carrier has not noticed decreased demand to and from China. This despite the National Travel and Tourism Office reporting in May the number of tourists from China fell 5.7 percent, year-over-year, in 2018.
While tourists may fill many seats on transpacific flights, airlines earn their biggest revenues from business customers, who may sit in premium cabins and pay higher prices. And apparently, they’re still traveling.
“There’s a strong interest in travel and commerce,” Bastian said.
Long-term, Delta is bullish on China. Today it funnels much of its connecting traffic to Asia through Korean Air Lines’ hub outside Seoul. The two carriers have antitrust immunity, and they recently instituted a joint venture in which they share revenue on many flights. It was one of Bastian’s first priorities after taking over from former CEO Richard Anderson.
The Korean Air relationship is expected to grow and strengthen over time, with Delta perhaps adding more flights from the United States to Seoul, Bastian said. But Delta is also hoping to move closer to China Eastern Airlines. In 2015, Delta spent about $450 million for a 3.55 percent stake in the airline. He said Delta is “excited about the possibility of hopefully” moving into Beijing’s new airport next year, which could improve connecting opportunities.
However because the United States and China do not have a liberal air services agreement, U.S. and Chinese carriers cannot apply for antitrust immunity. Until or unless they do, Delta cannot be as tight with China Eastern as it is with Korean.
Delta’s Asian network is in a considerable state of change, and not just in Korea and China.
After its 2008 merger with Northwest Airlines, Delta inherited a hub at Tokyo Narita International Airport. It was a relic from a time when airplanes could not fly so far, and U.S. carriers didn’t have as many Asian partners. At one point customers could fly Northwest to Tokyo and then transfer to another Northwest flight to reach about every major city in Asia.
The hub was still robust at the time of the merger, but over the past decade Delta has rolled it back, with Shanghai, Guam, Taipei, and Saipan going away within the past few years. Flights to Manila and Singapore remain.
Some analysts expect Delta will leave Narita airport within a couple of years, eliminating Singapore and Manila flights and moving its U.S. operation to Tokyo Haneda International Airport, which is preferred by business travelers because it’s closer to downtown. It has been difficult for foreign airlines to move flights to Haneda because the Japanese government limits access. But in advance of the 2020 Olympics, the Japanese government is giving U.S. airlines more opportunities.
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