We will not discuss pricing and we will not discuss capacity among competitors on these calls today or in the future, because it is not appropriate. "And it is not appropriate for the analyst community to be engaging in what forward capacity and pricing decisions are at Delta," Anderson added,
The discussion of Delta capacity expansion began with questions by JPMorgan analyst Jamie Baker. Delta has grown in SEA, where it is building a trans-Pacific hub and where it reported 6% third-quarter growth in passenger revenue per available seat mile on a 25% capacity increase, and in Los Angeles, where it will begin Delta Connection service to DFW and AUS next month and to SAT next spring.
"I am curious about how you model for new routes and whether that has evolved at all over time, and in particular whether you consider earnings multiple destruction," Baker said.
"When you add capacity, particularly into (other airline) hubs, it diminishes shareholder confidence, it suggests a lack of discipline, and in my opinion, it jeopardizes the likelihood of earning a multiple closer to that of high-quality industrial transport," he said. "So I know it may be difficult to quantify, but do you ever stop before you announce a route and just ask, or maybe run it past others: What if this destroys tens of millions of dollars of shareholder value by robbing me of a better earnings multiple?"
In response, Anderson declared, "I think you are in an area that is in some respects not appropriate for an earnings call. But I will just say this: Look at our results. I don't think there is a more disciplined approach to the deployment of capital in this industry anywhere in the world. And we will continue to make the right unilateral decisions. And we appreciate that you have a different opinion." (Hater! - I added that)
Morgan Stanley analyst John Godyn picked up the line of questioning, asking how Delta is funding growth in the trans-Atlantic, Seattle and Los Angeles.
"What we were doing was trying to find the worst assets across the whole network, wherever they were, and redeploy them into better revenue potential opportunities," said Glen Hauenstein, Delta's chief revenue officer and executive vice president. "That was really a key contributor to the improvement in the profitability of the airline."
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