Delta Doubles Down on Slim-Line Seats and Smaller Galleys

On Wednesday, Delta Air Lines (NYSE: DAL  ) announced a new fleet upgrade initiative. It will modify 225 aircraft -- 56 Boeing (NYSE: BA  ) 757s, 43 Boeing 737-800s, 57 Airbus A319s, and 69 Airbus A320s -- adding larger overhead bins, in-seat power, more space-efficient galleys and lavatories, in-seat satellite TV, and new slim-line seats. The upgrades are expected to improve passenger comfort, but just as importantly, they will boost Delta's cost-efficiency.

By doubling down on slim-line seats and removing unnecessary galley space, Delta will be able to add seats to its Boeing 757s, Airbus A319s, and Airbus A320s. This will widen Delta's cost advantage over top rivals United Continental and American Airlines.

Improving cost-efficiency
Many of the upgrades Delta announced last week, such as in-seat power and personal TVs, are designed to improve the on-board experience for passengers. This may foster greater customer loyalty over time.

However from an investing perspective, Delta's ability to add rows during these retrofits (without reducing legroom) is the critical factor that will make these investments extremely lucrative. The two main factors enabling these additional rows are the move to slim-line seats and the new space-saving galley and lavatory designs.

The rise of slim-line seats
Just about every major carrier, including Delta, Southwest Airlines (NYSE: LUV  ) , and Alaska Air (NYSE: ALK  ) , has started to install slim-line seats on its planes. These modern seats are highly desirable because they weigh less than traditional seats, reducing fuel burn, and they are thinner, allowing airlines to add more seats without reducing legroom. Some fliers find the new seats uncomfortable, but most can't tell the difference from traditional seats.

Delta already has slim-line seats on about a third of its planes, and the new Boeing 737-900ERs and used Boeing 717s entering its fleet are also outfitted with slim-line seats. Following the completion of the recently announced retrofits, the vast majority of Delta's planes will have slim-line seats.

Smaller galleys and bathrooms
Delta is also saving space by optimizing galley and lavatory configurations. For example, Delta's new 737-900ERs utilize a space-saving lavatory designed by B/E Aerospace (NASDAQ: BEAV  ) . The upgrades to Delta's existing fleet will provide similar space-saving benefits.

Delta is also reducing galley space. The airline's 757s and A320s are around 19 years old, on average, while the A319s and 737-800s average about 12 to 13 years of age. In other words, when most of these planes were delivered, airlines were still offering free meals in coach! Today, food service on Delta's domestic flights is limited to cookies and pretzels, and a few buy-on-board sandwiches. As a result, Delta can make do with much less galley space.

Get ready for more seats!
The end result is that while the 737-800s will keep the same 160-seat configuration, all of the other planes being modified will get extra rows of seats. The 757s will be configured with 199 seats (except for a few 757s designated for trans-Atlantic flights, which will have 197 seats). That's a significant bump from the 168- to 184-seat configurations that Delta currently uses for its 757s.

Delta's A320s will be outfitted with 160 seats, up from 150 seats in their current configuration. Lastly, the A319s will see a smaller capacity boost, with 132 seats in the new configuration, up from 126 seats today.

Adding seats to these older aircraft makes them more cost-competitive with new aircraft. That's particularly important today, because American Airlines is aggressively renewing its fleet with brand-new planes from Airbus and Boeing.

United Airlines has announced a similar retrofit of its A319s and A320s to add seating capacity. However, United's A319s will have 128 seats and its A320s will have 150 seats in the new configurations, so Delta will still have a density advantage (especially on the A320). That will help Delta maintain its cost advantage over United.

Foolish wrap
Delta's far-reaching aircraft upgrade program will add several modern passenger conveniences to some of its older aircraft. However, investors should be particularly excited about Delta's plans to add rows to most of these planes through the use of slim-line seats and space-saving lavatories and galleys.

By fitting more seats on each plane, Delta can reduce its unit costs without adding billions of dollars to its already hefty capital-expenditures tab. Savvy moves like this have propelled Delta to the top of the airline industry in the last few years, and so far, there's no sign that Delta will give up this leadership position anytime soon.

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Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 12, 2014, at 7:34 PM, Eric737 wrote:

    Its not magic. United is already announced they are starting this on all of their 737-800s.

  • Report this Comment On January 12, 2014, at 11:32 PM, Billnajd wrote:

    Zodiac Aerospace is doing the full interior of the A319, A320 and the B757 planes.

    As BE was mentioned for a very small portion of this up grade Zodiac Aerospace should be mentioned on the upgrade on the rest of all Delta fleet.

  • Report this Comment On January 13, 2014, at 7:52 AM, thomaslyons wrote:

    I dare say that if this story was about United/Continental, you undoubtedly would criticize the move and being passenger unfriendly and a bad decision!! Quit being so biased. It really is obvious!!

  • Report this Comment On January 13, 2014, at 8:33 AM, F16Scott wrote:

    I disagree Thomas. Delta recently announced a $770M upgrade to its fleet and Adam wrote a good article about it from the business/investor point of view. How is that biased?

  • Report this Comment On January 13, 2014, at 6:43 PM, dward wrote:

    Just another reason NOT to fly DL. They only care about the money, not the comfort of their paying customers !

  • Report this Comment On January 14, 2014, at 3:33 PM, TMFGemHunter wrote:

    @thomaslyons: Are you saying that I'm biased because I have a different opinion than you? I think adding seats to the plane was a good move for Delta and a good move for United. But on average, Delta still has more seats than United on like-for-like planes across its fleet. That means lower unit costs for Delta and higher margins.

    The fact that Delta has a significant unit cost advantage and a significant margin advantage over United is not my opinion. It's a fact.

    Adam

  • Report this Comment On January 15, 2014, at 12:41 AM, UAGUY06 wrote:

    United Continental Holdings is just the name of the parent company of United Airlines Inc. In your above article you referred to United Continental. That is incorrect. It's just United Airlines. Continental Airlines no longer exists. Just a bit of feedback for your future comments or articles.

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