Delta Air Lines just delivered a solid first quarter in 2024, boasting record revenue and strong operational performance. Analysts focused on familiar narratives: the rebound of corporate travel, the shift to premium experiences, and Delta's continued commitment to operational reliability. But buried within the transcript of their April 10th earnings call [1], there's a whispered hint of something bigger, a potential catalyst that could send Delta's profitability soaring: a regional airline renaissance.

While Delta executives acknowledged the lingering pilot shortage within their regional network, their language hinted at a shift. Gone were the dire warnings of 2023, replaced by a cautious optimism. Savi Syth of Raymond James, in a pointed question, highlighted the discrepancy between industry-wide pilot hiring slowdowns and Delta's ambitious domestic capacity growth plans for the summer. Glen Hauenstein, Delta's President, responded with a telling phrase: 'stability in the regionals.'

This 'stability,' if it materializes, could be Delta's secret weapon in 2024. To understand the significance, we need to rewind to 2023. Regional airlines, the backbone of Delta's domestic network, were ravaged by the pilot shortage. Flights were cut, schedules were unreliable, and costs skyrocketed. Delta, like its competitors, poured resources into mainline pilot hiring, leaving regional carriers struggling.

Hauenstein admitted as much in Delta's January earnings call [2], stating they had to prioritize 'once-in-a-lifetime opportunities' in coastal gateways, 'at the expense of rebuilding our core hubs.' Delta's core hubs, its strongholds like Atlanta and Detroit, rely heavily on regional feed to funnel passengers onto mainline flights. The regional weakness was a drag on the entire domestic network.

But now, there are signs of a turnaround. While Delta hasn't yet factored in 'full utilization' of its regional fleet, Hauenstein acknowledged that easing mainline pilot hiring pressure could free up regional pilots in the latter half of 2024. Savi Syth's question about regional capacity going forward was met with an intriguing response: 'We still have 50 to 100 airplanes and less of utilization than we have on the ground in our fleet.'

Potential Impact of Regional Jet Utilization

The following chart illustrates the potential financial impact if Delta brings just 50 of its grounded or underutilized regional jets back to full operation.

Here's where the potential for a profit explosion comes in. Let's conservatively assume that Delta manages to bring just 50 regional jets back to full utilization in the latter half of 2024. Assuming an average capacity of 70 seats per regional jet, that translates to 3,500 additional seats in the air.

Furthermore, let's say those 50 jets fly an average of four segments per day. That's an additional 200 daily departures funneling passengers into Delta's core hubs. Given the high connectivity and efficiency of Delta's hub-and-spoke system, this influx of regional capacity could have an outsized impact on mainline load factors and revenue.

The financial implications could be substantial. If each of those 3,500 seats is filled at an average fare of just $200, that's an additional $700,000 in daily revenue, or over $250 million annually. And this is just from the ticket sales, not accounting for the ancillary revenue generated from baggage fees, premium upgrades, and other services.

The potential for cost savings is equally significant. Delta is currently carrying 10% more employees than in 2019, driving essentially the same level of operations. A revitalized regional network, operating at peak efficiency, could allow Delta to absorb this excess headcount, reducing unit costs and boosting profitability.

Of course, this regional renaissance is still a hypothesis, not a guaranteed outcome. Supply chain constraints continue to plague the industry, fuel costs remain volatile, and the pilot shortage, though easing, hasn't vanished. But the whispers within Delta's earnings call are impossible to ignore. If the airline can indeed unlock the full potential of its regional network, 2024 could be the year Delta truly takes flight.

"Fun Fact: Delta's regional brand, Endeavor Air, was initially called Pinnacle Airlines before Delta acquired it in 2012. Now, Endeavor is wholly owned by Delta and operates over 180 regional jets, playing a crucial role in connecting smaller cities to Delta's vast network."