Why Delta and United are pulling away from the airline pack

CNBC

18-07-2025

For United Airlines CEO Scott Kirby, there's his airline, his carrier's main rival, Delta Air Lines, and then everyone else.
Delta and United accounted for more than 86% of the profits posted by the seven largest airlines last year. Airline margins are notoriously thin, less than 4% last year, compared with close to 20% for big U.S. companies, according to the Airlines for America industry group. Already, the top four U.S. carriers — Delta, United, American and Southwest — accounted for about three-quarters of domestic capacity.
But beyond size, Delta and United's networks and focus on premium travel will help them weather a challenging year better than their competitors, analysts say.
"One thing that's becoming even more clear … is the strength of the two brand loyal airlines really winning and everyone else losing," Kirby said on the carrier's quarterly call on Thursday.
"It's hard to say that he's wrong," said Melius Research airline analyst Conor Cunningham.
And things are looking up for the rest of the year, Delta and United's CEOs have said. Kirby told CNBC's "Squawk Box" on Thursday that United's pared-down 2025 forecast has some upside because of a pop in demand this quarter after on-again-off-again tariffs and other challenges bogged down bookings earlier this year.
An air traffic controller shortage that sparked flight cuts at United's major hub of Newark Liberty International Airport in New Jersey is taking a bite out the airline's second and third quarter profits.
Airfare is falling this year, even in what are traditionally peak travel months, with too many coach class seats in the market. Domestic travel demand, especially from price-sensitive consumers, has been weaker than the lofty expectations airline executives had at the start of 2025.
Airfare fell 3.5% in June from a year earlier while inflation overall rose, according to the Bureau of Labor Statistics.
"The summer is generally never on sale, and the summer is heavily on sale right now," Southwest CEO Bob Jordan told CNBC in late June.
Delta and other carriers have said they will scale back their capacity plans after the summer travel season, which wanes around mid-August, but even making money during peak periods is challenging this year.
"Simply put, a portion of the industry is drowning; incapable of producing profit, even during the summer peak," JPMorgan Chase airline analyst Jamie Baker wrote in a note on Thursday. "It strikes us as patently logical to expect these franchises to throw as much capacity at peak demand as they can muster, in hopes of potentially breaking above the waterline for just a brief gasp of air."
Both Delta and United have trimmed their 2025 outlooks. (Southwest, American and Alaska report quarterly results next week.) But an emphasis on international travel, as well as premium seats and loyalty programs, is boosting both carriers.
United on Wednesday reported a 7% drop in the second quarter in domestic revenue per available seat mile, a gauge of airline pricing power. The carrier also said it saw a 4.5% drop in that figure overall, though international unit revenues weren't down as much, thanks in part to a boost from trans-Pacific flights like those to tourists' latest obsession: Japan.
Delta's domestic revenue was down 5%, and down 3% overall.
Even some trans-Atlantic trips showed signs of oversupply in the market as feverous demand for European trips post-pandemic settles down and inbound tourism to the U.S. drops.
"It can't be amazing forever. What goes up comes down," said Melius' Cunningham. "This is the airline industry."
But both United and Delta pointed to strength in their premium cabins, where seats are are several times more expensive than a coach fare, as well as in their loyalty programs. Delta said its revenue from its lucrative American Express partnership rose 10% from last year in the second quarter to $2 billion, and premium-class revenue was up 5%.
All airlines are thinking of new ways to generate revenue, not just remove costs from the system through culling unprofitable flights and other drains.
Southwest, for example, in May introduced checked bag fees for many customers, a once unthinkable add-on for a carrier that helped democratize air travel. It plans to start selling assigned seats, get rid of its long-time open seating plan and offer extra-legroom options that command a premium. The carrier is the only major U.S. airline whose stock is up this year.
At the higher end, Delta said it's testing segmentation that it's mastered in the back of the plane up in the front of the cabin.
"Premium has certainly been where our margins have continued to expand, and so we're highly focused on continuing to provide improved service to those customers and more segmentation," Delta's president, Glen Hauenstein, said on a July 10 earnings call. "The segmentation that we've done in main cabin is kind of the template that we're going to bring to all of our premium cabins over time because different people have different needs."
United recently unveiled a revamped Polaris class, its top-tier cabin for longer-haul flights, as well as new dedicated lounges. United's chief commercial officer, Andrew Nocella, said the company has room to expand premium-economy, the cabin that sits between business-class and coach.
"That's the cabin … that's generating very good returns and the one that we'll probably lean more into going forward," he said.
Nocella hinted at segmentation at the front of the plane, but stopped short of sharing details.
"Not everybody wants the full experience. Some people want other experiences," he said. "We look forward to continuing to diversify our revenue base and segment it in the appropriate way, and I'll leave it at that."
While Kirby puts his airline and Delta in a similar bucket, rivalry between them is strong. When asked about Delta launching routes from Los Angeles and United's home hub in Chicago O'Hare International Airport to Hong Kong, an existing United route, Kirby brushed it off.
"We fly 6,000 flights a day so a couple of new routes aren't that big of an issue for us," he said. "But I guess I feel complimented when other airlines feel like they're worried about us getting ahead have and have to fly routes that are going to lose money for them."