Former Delta Air Lines President Glen Hauenstein, who retired three months ago, gave an interview on this week’s Airlines Confidential.
The architect of Delta’s commercial success, Hauenstein was no friend of the frequent flyer and was proud of the airline’s moving from selling only 13% of its first class seats on domestic flights (only 6% when stripping out domestic connections on longer international journeys) to today where they’re selling about 87% of those seats – even if it means taking $26 from a once a year flyer rather than allowing a complimentary upgrade to a $30,000 – $50,000 a year customers.
What was new here, though, was his teasing of a “reinvigorated” product coming soon. And the discussion of Delta’s growth strategy, why low cost carriers can’t become premium, and how people no longer buy just on schedule and price (even if many do).
Delta’s Coastal Strategy Feeds Their Credit Card Profits
Hauenstein says Delta’s strategy was to build in major metro areas of LA, New York, Boston, and Seattle because smaller cities weren’t where the revenue was. I think the genius here, which they may not have really even realized at the time, was how that would capture the credit card spend of those markets.
Delta LAX
Delta’s deal with Amex, of course, is the most profitable because of Delta’s market position in the most important spend cities in the country, and the brand they’ve built on the back of their historical reliability. So they’ve offered a less valuable rewards program, Delta American Express cards have given consumers less, but the best airline option in a city captures an outsized customer loyalty and card spend. And that’s how Delta makes its money.
They earned $5.8 billion in operating income in 2025. They took in $8.2 billion in revenue from American Express, and previously disclosed a 39% margin for SkyMiles. That would equate to $3.2 billion in profit, or a majority of profit at the airline. They wouldn’t be earning this, for instance, if they hadn’t bought the US Airways hub at New York LaGuardia 15 years ago.
Delta New York JFK
Revenue Has Become More Important Than Cost
Hauenstein does make the important point that airlines used to focus too much on cost to the detriment of revenue. Air travel is no longer just a commodity business.
He’s too polite to say it, but that’s ultimately what’s been the biggest mistake behind strategic blunders at American Airlines since US Airways management took over – a management team that came out of American West, and neither of those carriers had real premium revenue, so their focus was stripping down the product to deliver the most seats at the lowest cost – precisely when consumers were looking to buy a more differentiated product.
I think there was a period of time where the only way that was being sold to airline management by consultants, external consultants, was the only thing that mattered was cost. And I can’t remember how many meetings I was in with the people at McKinsey or the people at Bain telling, this is the way, the only way you’re going to survive. And that created offshoots like Song at Delta or… you know, TED at United or Continental Light at Continental, that we were trying to send out rescue boats. Rescue boats that could have a lower cost structure, that could eventually overtake the legacy airline. And when you think about it, how did we miss the fact that we weren’t getting paid for our most premium products?
How did everybody miss that for so many years? And these are really bright people. These are people coming out of Harvard with the biggest MBAs. And how did you overlook that, you know, I think I was always indoctrinated into the 65% of the travel decision is made on schedule and price alone, which is absolutely true, which leaves another 35% of travelers who are selecting on all other product attributes. And nobody was catering to those 35%. Everybody was focused on the schedule and price. And that left, I think, a wide opening for Delta to start what we initially called decommoditization. We had evolved that many times, and I think now we call it the premium product strategy. But originally, it was more of a defensive move to say, how can we stop losing? And I think we did a great job at Delta turning everything upside down and saying, wow, instead of having first class domestically be a loss leader, Now it’s the giant profit center.
And that enables a whole transformation, not only of Delta, but of the carriers that followed us. And I think it’s really redefined how airlines work.
Low Cost Carriers Can’t Be Premium
He also shared his analysis on low cost carriers trying to sell more premium products. Consumers have increasingly been willing to spend more for a better experience. Airlines like Delta try to offer something at every price point, and upsell customers. Ultra-low cost carriers have historically mostly focused only on the bottom-end of the market which is tough because (1) that’s not exclusively what customers want, (2) their costs have been rising, and (3) Delta can serve that market and have upside with those same customers and others.
However, Hauenstein is skeptical of attempts by low cost carriers to be more premium. Spirit Airlines tried it. Frontier Airlines is adding a domestic first class, and so is JetBlue. Southwest is expected to. However, he says that:
- Low cost carriers lack the club infrastructure, schedule density, and broader premium proposition customers want.
- That means they will need to deeply discount their premium cabins to attract passengers.
Having only part of a premium proposition in terms of flight options, clubs (which JetBlue and Southwest are adding but it takes time), and seat back entertainment (which JetBlue has) means the overall product won’t command the same revenue that Delta can. It also means their premium product costs are lower. Multiple products complicate the business and come with costs of their own, but that doesn’t mean offering more options along a fare ladder can’t be accretive.
But Delta’s Own Product Is Slipping
Premium as a differentiator – and offering a ladder for customers to buy up – has become especially important, but Delta’s own product has been slipping – from reliability to the product itself. Hennry Harteveldt in the interview highlights some of the challenges that I’ve also noted here over time from pilot scheduling leading to operational mess, to the withdrawal of drink service in back on short flights, to a first class product with less orbust food, and a business class cabin that still only offers suites on 50% of their fleet a full decade after rolling that out.
TLDR… the complimentary upgrades vanished… because… profits… over people…
I still believe that adding clubs will not be a profitable move in the long run. Once the novelty wears off, customers won’t spend much extra to spend a short time at a crowded club rather than out in the terminal, which might even be less crowded than the club.
My family members really enjoyed their first visits to clubs, but now it’s not very important to them. Not to mention that if you are traveling efficiently there is very little spare time to spend at a club.
Deciding not to upgrade is a BUSINESS DECISION and eventually when the economy turns, they will have no choice but to treat top tiers better and differently than now. Their equipment, mainly the old 757 and 767 are HUGE problems. Been on 3 757 this year, all were late b/c of maintenance and the interiors are SO bad. Platinums and Diamonds deserve upgrades. And yes, I have the Reserve card but even being Diamond w/ the Reserve – no upgrades. And their economy plus is nothing to write home about. NO flight I’ve been on has a snack basket anymore. Catering issues, reliability issues and so much more. They were the best to customers only a few years back. I dont get the new Delta. Meanwhile, United is gaining steam!
@Jeff T — You may be onto something… (@Gene, do you concur?)
What part of “never leave money on the table” do people not get?
Sorry, Gary, that your upgrade is no longer free and sold to a once a year flyer. Once a year flyers, however, don’t get any miles when flying basic economy, not even a tiny bit to encourage loyalty.
Bottom line, if you want it, you have to pay for it.
The whole profits over people thing is a valid argument, however, are airlines supposed to just give products away and expect to be profitable? American learned that they couldn’t get market share when they offered more room throughout coach. In no other countries, is complimentary upgrades a thing.
If the airline prices the upgrades too high, everyone posts… this price is crazy. (yet no praise if this goes unsold and is given away)
If the airline prices the upgrades too low; everyone jumps for it and then complains there’s no complimentary upgrades.
At least this greedy jerk is “past” in his Delta role.
@ 1990 — I agree that Delta will kiss up to top elites as needed, but I also strongly advise against people being fooled by it. My advice — cut the cards and stay home more. You will likely be happier for it. I’m not advocating for no travel, just less travel, like once a month instead of once a week.
@Gene — Yeah, once a month is reasonable; once a week, if not for work, is excessive!
Personally, I think the emphasis on clubs is missing the mark. The real value provided to higher spend customers is not the free (and mostly terrible) food at the lounge crammed with other people!
The value is being treated special when the Ship hits the Fan. Make that a differentiator- and staff it appropriately with agents- and you will get the loyalty you want, along with the CC spend that these customers are going to do anyway.
-Jon
@Jon Biedermann — And, also, build greater operational resilience, so that “Ship (rarely, if ever) hits the Fan,” and when it does, the rebound is as fast as possible…
Diamonds used to get immediate upgrade to Comfort Plus when booking. My last three bookings took almost two weeks for an upgrade to be confirmed and, even then, on only part of the itinerary. It seems the only real Diamond benefit anymore is the dedicated phone line. My Delta loyalty has ended. Three out of our last four international flights were in business class on other carriers, all comparable or superior at less cost. I am now firmly in the WFBF category. And, I agree, the benefits of Comfort Plus are oversold. No snack baskets, in fact, a new flight attendant offered the first row of C+ snacks on a flight recently, only to be immediately scolded by another FA. And forget asking for a second drink in C+, that won’t happen.
Profits over *entitled arrogant elites who don’t pay for or their own tickets or choose the carrier*.
Fixed it for you, retard. Profit is not a dirty word…well, for idiot leftists it is, but only because they think the entire economy should be operated under the threat of force, aka government controlled.
My main factor on booking flights is the loyalty program. Are my odds as an high level elite good or better to get upgraded? Do I get genuinely better seats for free regardless of whether I get an upgrade? Can I get reasonably priced and reasonably available saver awards up front for the trips that really matter to me? Can I find upgrade certificate availability on long haul flights I want? Once Delta was a No on all of those I went from being a strong partisan to avoiding them pretty much whenever possible. I’m willing to put a fair bit of effort and money into a program that returns my loyalty but I need to see the value that will entice me to make somewhat irrational decisions. For Delta, that ship sailed a long time ago.
Excellent article Gary. I finally see why Delta switched to paid upgrades over rewarding frequent fliers (and why United and AA are following suit).
I don’t think the profit motive suddenly “reared its ugly head” like some on here – airlines have always chased profits. What changed is the behavior of fliers. Ten years ago I never would have paid cash for an upgrade. These days I regularly plunk down up to $250 per flight to get a guaranteed spot in first class. Note I also jettisoned my useless Delta Reserve and Delta Platinum Amex – no value there. Also stopped chasing Delta status. I have a feeling both Delta and I are happier.
The trick now (which has also been pointed out here) is whether Delta truly has a luxury offering. I think United (and to some extent AA) are passing them up in this regard. Late flights, old equipment are not going to motivate people to pay more.
@Mantis — Ahh, look at you… cucking for Delta on here, yet crying like a baby over the recent Hyatt devaluations over at FrequentMiler.
Sounds like you do ‘get it’ that greedy corporations are gonna exploit even their most valuable customers; and, yes, those affected absolutely should call them out, instead of gatekeeping or sane-washing what is a sad day for those who actually believed and trusted in those businesses not to screw them over for their loyalty.
(Anyway, like I suggested at FM, you may wanna do 3x via Alaska Summit, if switching spend away from Hyatt and still living overseas…)
@bhn — Even as a lowly Platinum, these days, it seems to still work (Comfort for free), but you gotta book at least Main Classic, then it usually applies after booking. Maybe it’s more of a tech issue than a program devaluation there, but perhaps it is a screw-job and they’re just using plausible deniability to pretend it isn’t yet another devaluation… (@Gene will be pleased to hear of your adoption of WFBF!)
I see @1990 is posting from his mother’s basement again. Maybe after listening to Pocahontas speak he should do a bit of research on various industries with razor thin margins, like airlines. And not like the Pharma industry that gives Pocahontas millions.
Premium is where it’s at and I’m pleased that the US4 are finally moving away from Spirt this and Frontier that. It’s nothing more than a money losing idea and poses problem after problem.
Want first class? Pay for first class.
@George Romey — No, George… remember, I live rent-free… in your head… Ya know, it’s a bit empty up here; can we please get some furniture, maybe a bookshelf? Read a little. (@Gene, even George is all-about that WFBF lifestyle!)
It speaks volumes that DL – which didn’t invent either the loyalty program or the cobrand credit card – has built them better than everyone else and multiple other companies are copying DL’s strategies.
as for charges about DL’s product and reliability, AA and UA each have less than a half dozen suite equipped widebodies in service – perhaps combined – while DL has 80 and clmbing; the number will be at 75% of its fleet and about 120 aicraft in a couple years.
as for on-time and cancellation rates, the difference has not been more than a couple percentage point and ranking positions vs the highest performing of the big 4 (WN often has the lowest cancellation rate of the big 4). DL has managed to fix its pilot staffing issues – and you can read on Airline Pilot Forums that DL pilots aren’t happy with the way DL is doing it – but DL’s operational performance is, once again, at the top of the industry when on-time and cancellation rates are considered along w/ baggage handling where DL has long done far better than AA and UA.
Tim
Delta has certainly figured out how to profitably target the innumerate who want to spend 500K SkyPesos for 3rd rate international partners and who think accumulating SkyPesos which decay faster than Plutonium 241 makes for a good FF program.
Clubs–been there, done that. Even the alcoholic bar area is crowded with drunk mommies and screaming toddlers. Lucky to find a space to plug in a laptop and do laptop work. I leave the clubs to the credit card people, and mind my own business in the common gate waiting area–much more peaceful and relaxing.
I only get Delta upgrades on an early Sunday morning flight–everything else is sold out.
And I hate the tiny A220 that replaced the reasonably nice A319 and A320. After learning on the A320 to put my hardshell carryon on a narrow side like a bookcase, I found that the A220 overhead bin is an inch too small for that. So now I have to carefully study the planned equipment on the schedule to try to avoid that aircraft, which sadly seems the future direction of Delta. Worse than United, now.
oh look
A Tim Dunn post that randomly mentions baggage handling.
How unique
@Jon F — Oooh, that’s a good one! Plutonium-241 has a half-life of 14 years, so good luck to anyone who holds their SkyPesos that long… Though, since SkyMiles partner awards evaporate before you can ever use them, they may be more like Fluorine-18 (half-life of 110 minutes). “Flash sale!”
Somewhere out there is a person who reads a detailed, nuanced article about airline economics and responds with “TLDR… profits… over people…” as if summarizing a Dickens novel with “bad man sad orphan.” The kind of commenter who then proceeds to post five more times in the same thread, tagging strangers, dispensing unsolicited loyalty card advice to people who never asked, and self-appointing as the section’s moral compass. A walking contradiction: too impatient to read the article, yet patient enough to haunt every reply thread like a frequent flyer lounge ghost who can’t figure out why nobody wants to sit next to them.
I think Mr. H. made a faux pax when mentioning Seattle. Only way that will happen if they buy out As
@Mike Hunt — Bahaha!! You still got it!
Retired Delta Air Lines President Glen Hauenstein is a magician. Not the fun kind with rabbits—he made our complimentary first-class upgrades vanish faster than a bag of peanuts in coach.
I’m ex LAX, UA MM, and BA Gold, so plenty of bennies flying AA. For domestic travel it’s only EC/E+/MCE (or first), and I get it free on AA and UA. I still end up on DL more than I expect because it ends up having the right nonstop, at the right time, at a competitive price, and for my flights the upsell to EC is usually only $50-$75.
Oddly UA doesn’t seem to consistently have the flights I want when I want them (I guess not oddly since the domestic network is still playing catchup after all these years, but I can really feel it), and AA feels like greyhound (outside of FCI/FL).
In specific circumstances each airline have their benefits, but for an airline that should be a distant third choice DL ends up in contention often.
Delta equals pure trash I avoid them at all costs but happily dine and use their premium lounges when flying Virgin
Their near worthless points sad.I pity those in their hubs who may be forced to fly them
@Gary: Ponder the value of running a full-on loyalty program based on what Delta is doing now. The average elite member is worth…less than $29. That is what their actions say when they sell the seat for that price ,rather than ‘gift’ it to a waiting elite.
Following on, this says that elites are a lot less loyal than one might think. Faced with this situation, Delta’s response is not to bolster the value of their program but to accept the status quo.
It’s funny how some on this thread are attacking others for mentioning the elephant in the room: corporations are ruining society by trying to squeeze every nickel out of customers. There is a thing called courtesy. It is what keeps society together and stops us from taking advantage of each other. It’s a factor in why the ER physician doesn’t say “give me your entire bank account or I’ll let you die right here and now.” Yet, corporations feel entitled to have just that type of behavior and policies towards customers because, “never leave money on the table” as I saw another commenter on this thread say. If corporations don’t want to be regulated, then they need to do a better job of policing themselves and not stabbing their customers, especially those who have exhibited loyalty, in their backs. In the same vein, customers need to better organize and boycott these terrible business practices.
Delta has now conditioned their most loyal customers to PAY for the one benefit they used to get for FREE. Fools.
The status game is OVER. Airlines win.
There seems to be two camps. The leisure traveler that says want first buy first. Second being the frequent business flyer that thinks their loyalty should be rewarded. I’m part of the second camp. It’s costly in both money and time to be loyal to one airline – forces layovers when other airlines have direct options. My upgrades on Delta (Diamond) fell off a cliff last year, so I took my $40k + spend to another airline and I’m getting upgraded over 50% again.
Delta will be begging for loyal business travelers again once a recession hits and leisure travel slows