Competition among low-cost and volume airlines is fierce, and the consumer at the lower end is spending less. It’s why Spirit Airlines (FLYY) is in a world of pain, and budget traveler favorite Southwest (LUV) is adding premium seats and (gasp) assigned seating to its planes.
Delta (DAL) CEO Ed Bastian believes there will be consolidation in the low-cost space, and perhaps some competitors may leave the market.
It’s why Delta and Bastian invested heavily in premium, with more higher-end seats and enhanced loyalty programs, along with improved service and reliability. It’s also why the company raised its stake in private aviation company Wheels Up (UP) to 38%, worth around $282 million at the end of the second quarter.
Most people believe Wheels Up operates in the fractional jet space, which is akin to a timeshare. But that is not the case, Wheels Up CEO George Mattson explains.
Matsson says the company operates in three areas: its membership business, in which clients pay a yearly fee and can book flights on Wheels Up jets; the global charter business, where anyone anywhere in the world can book a private jet for personal or corporate use; and its Delta offering.
In addition to offering on-demand private travel to Delta business customers with corporate accounts, Delta is now expanding to commercial, or leisure, travelers, getting in deeper with that premium customer.
“Delta saw the [Wheels Up] opportunity, as they’ve become really focused on premium, high-value customers to offer this as an integrated part of their offering,” Mattson told Yahoo Finance at Monterey Car Week. “And what’s the next level above premium commercial [travel]? Well, it’s us. And so they’re trying to just put this on top of that.”
Mattson noted that this summer, if Delta customers purchase an international flight in Delta One, which is Delta’s top cabin class, to Athens, Barcelona, Naples, or Nice, they will get an email or Delta app notification allowing them the ability to book further “last mile” plans. This means a trip on Wheels Up private jet to further destinations like Dubrovnik, Ibiza, Portofino, or St. Barts.
It’s ritzy — and expensive. But it turns out that Delta and the commercial travel industry have plenty of passengers who can afford it.
“Some studies [that] have been done suggest that 90% of people who can afford to fly private have never flown private,” Mattson said, arguing that rigid schedules and rules turn off these higher-end customers. Of course, high travel costs are an issue too, but Mattson believes the Wheels Up offering is competitive.
