Delta’s Premium Economy
American legacy airline Delta will offer free Bellini cocktails and snacks in a bid to keep flyers flying during the next recession, which could prove a death sentence for the sector if history is anything to go by.
When the economy goes south, the first stocks to drop are usually airlines. Over the years, hundreds have unfortunately landed in bankruptcy courts, and Wall Street’s fear of flying has never truly healed.
An airline investor relies on a booming economy to rally business travelers and get families hyped for a holiday. It also relies on oil prices to stay low, with fuel being the highest and most volatile cost of operations. When turbulence hits the world economy, and these factors turn against you, it can be curtains for an airline with weak fundamentals.
The running joke goes that to become a millionaire, start as a billionaire and open an airline. However, Paul Jacobson, the CFO of Delta Air Lines, is doing a fine job at putting shareholders’ minds at ease as we near the final innings of another market boom!
The crash “might be two years down the road, it might be five years down the road, but at the end of the day, we’ve been studying for this final exam for a long time.” Investors will mark that “final exam,” and to be fair, efforts by this most profitable US airline to diversify into engine repairs deserve full marks.
However, Jacobson must have been well above 35,000 ft when he conjured the idea of free cocktails and snacks. Not only will Premium Economy class be unaffordable during a recession, but if customers cared about comfort and fun, Hooters Air would still exist. Ticket sales are driven by price, reliability, and flight schedules. The company traded flat on this announcement from Delta. How it will trade after the next big market move is another matter!