Even as airline passengers complain of increasingly cramped quarters on planes, there is a battle in the industry to provide a better experience for customers. The best perks don't always get to everybody, but that is part of the airline business model in which you have to pay up for a better experience.
However, a terminal renovation recently completed by Delta Air Lines (NYSE:DAL) has something for everyone to love, even as those paying more get a little extra. Let's look at why Delta spent $1.4 billion on upgrades at its terminals at John F. Kennedy International Airport in New York, which include 11 newly opened gates..
First, it's worth looking at where Delta spent its money at JFK, the airline's international airport of choice in the New York area.
The renovation as a whole served largely to expand Terminal 4 (including the new gates) and to update the features of Terminal 2. But the project was about more than expansion. Besides updating furniture and fixtures, the airline also added features for its elite members.
A priority check-in area adjacent to security is one nice feature, but the most interesting addition is above Terminal 4 itself. Delta has built a rooftop terrace cafe as one of its Delta Sky Clubs, where passengers can enjoy fine foods and wines and even reserve private space. Terminal 2 also gets an upgraded Sky Club.
Reasons for renovating
These terminal renovations certainly bring some class to the airline's JFK facilities, but Delta didn't spend the money just to add class. The company had several reasons for making this substantial investment in its operations.
Operational efficiency: Many of the terminal renovations are aimed at improving operational flow. For example, added customs booths in Terminal 4 allow passengers to move through customs faster, reducing the chances they will miss connecting flights and causing fewer headaches for the airline.
Dual taxiways at Terminal 4 prevent congestion outside the terminal and allow aircraft to move to where they are needed with less delay. The expansion of Terminal 4 has also allowed Delta to operate more aircraft out of its JFK operations.
Delta has not released specific numbers on how many additional aircraft will operate through each terminal, but the larger number of gates gives the airline more available space for aircraft and the ability to move more of its Delta Connection flights from Terminal 2 to Terminal 4.
Outperforming the competition: JFK is a particularly valuable airport for major airlines since it serves both the New York and international markets, particularly transatlantic routes. By renovating its terminals, Delta replaced outdated facilities with modern ones that stack up better against rivals.
The terminal renovation goes hand in hand with the airline's joint venture with Virgin Atlantic. Both Delta and Virgin Atlantic now operate out of a renovated terminal that boasts a better experience for the international market.
Increasing perks: The Delta Sky Club terrace is something new that won't be freely available for everyone. Delta Sky Club is a perk for higher-paying fliers or those who pay for a one-day Sky Club pass. Higher-paying fliers generate more revenue for Delta, while purchases of Sky Club passes also benefit the airline.
Rewarding the highest-paying customers is big business for airlines, which already offer these fliers priority on upgrades, boarding, and club access. Within this perk-based arms race, it's not surprising that Delta feels the need to build something unique to help keep its members from taking their business elsewhere.
Passengers have been sampling the terminal's updated features, and reaction online has seemed generally favorable.
But airline investors and fliers alike should continue watching for more terminal renovations. While Delta's renovation at JFK is mostly wrapped up, Southwest Airlines (NYSE:LUV) is just beginning a $508 million renovation to Terminal 1 at Los Angeles International Airport.
Southwest is also looking to improve the passenger experience while reducing congestion through both updating the appearance of the terminal and expanding the number of security lanes. In addition, the terminal will receive some structural reinforcements and seismic retrofitting, according to the Los Angeles Times.
Like the Delta renovations at JFK, Southwest's move at Los Angeles International is worth keeping an eye on, whether you're an investor or a traveler.
Although aircraft orders tend to grab most of the attention when it comes to airline investment, airlines' operations on the ground can be of equal importance. Terminal updates such as Delta's JFK renovation and Southwest's project at LAX give airlines an opportunity to boost efficiency and improve the passenger experience in ways other than buying new planes.
As a shareholder in a few different airlines, I see terminal renovations as an integral part of good long-term planning and view both the Delta and Southwest efforts as well worth the investment.