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Delta Air Lines, Inc. Is Returning to India

Adam Levine-Weinberg, The Motley Fool

Earlier this month, CEO Ed Bastian hinted that Delta Air Lines (NYSE: DAL) might start flying to India again, after the U.S. and United Arab Emirates agreed on measures to address alleged unfair competition by Middle Eastern airline giants Emirates and Etihad. Not surprisingly, Delta announced on Thursday that it will start flying nonstop from the U.S. to Mumbai in 2019.

However, while the company has taken great pains to tie this decision to the recent aviation agreement with the UAE (and a previous deal with Qatar), this was likely a minor factor behind Delta's return to India. The carrier needs to offer nonstop flights to India to stave off a challenge from United Continental (NYSE: UAL). Furthermore, recent fleet upgrades, a new codeshare agreement with Jet Airways, and India's strong economy bolster the business case for Delta to fly nonstop to India.

Stiff competition pushed U.S. airlines out of India

Over the past decade, United Airlines has been the only U.S. carrier that managed to maintain its footprint in India. United currently offers daily flights from its hub in Newark (just outside of New York City) to Delhi and Mumbai.

Delta Air Lines previously flew from New York to Mumbai, but it canceled that route in 2008. It briefly tried flying from Atlanta to Mumbai thereafter, but axed that route in 2009. After that, it flew to Mumbai from Amsterdam, the hub of its European joint venture partner KLM. It dropped those flights in early 2015 after more than five years, complaining about weak fares and overcapacity driven by the rapid expansion of Emirates, Etihad, and Qatar Airways.

A Delta Air Lines plane landing on a runway.

Delta dropped its last route to India in early 2015. Image source: Delta Air Lines.

Meanwhile, American Airlines canceled its only route to India way back in 2012. For the past few years, American and Delta have only served India indirectly, offering flights to Europe and onward connections to India via their codeshare partners. This puts them at a disadvantage relative to United Airlines in terms of competing for business travelers.

The external environment has changed

Delta Air Lines' management has highlighted the recent aviation deals with Qatar and the UAE as key changes that have made nonstop flights to India possible. However, while the deals call for greater financial disclosure and a reduction in subsidies for the state-owned Gulf carriers, they don't prohibit subsidies outright and they haven't forced the Gulf airlines to cut their flights to the U.S. In other words, not much about the competitive environment has changed.

However, there have been other major changes in the external environment since 2015. Most notably, India's GDP has continued to grow at a high-single-digit rate, giving India the fifth-largest economy in the world. That likely means more business travel. Business travelers tend to pay high fares and prefer nonstop flights -- or at worst, one-stop itineraries.

Delta has dramatically improved its competitiveness

Even more importantly, Delta Air Lines has significantly enhanced its ability to fly nonstop from the U.S. to India over the past few years. First, the carrier has introduced a new fleet type for long-haul routes -- the Airbus A350 -- with dramatically improved premium seating options.

In the Delta One (i.e. business class) cabin, Delta's A350s offer a highly acclaimed all-suite layout that is popular with business travelers. The A350s also have 48 "Premium Select" seats. This is a premium economy option that offers wider seats and substantially more legroom than the economy cabin, but at a much lower price than Delta One. Both products are likely to do particularly well on 15-plus hour flights to India.

A row of Delta One business class suites on an A350 plane

Each Delta One seat on the carrier's A350s has a sliding door for privacy. Image source: Delta Air Lines.

The upgrades to the Delta One cabin and the addition of a Premium Select section mean that Delta won't rely on commoditized coach tickets for as much of its revenue. It also doesn't hurt the business case that the A350 is substantially more fuel efficient than Delta's other long-range planes.

Second, Delta Air Lines signed a codeshare agreement with India's Jet Airways in December 2015. It plans to expand this codeshare relationship when it begins its new Mumbai route, allowing Delta customers to easily connect to Jet Airways flights to other cities in India.

There are still plenty of details to be worked out. Delta Air Lines hasn't announced which of its U.S. hubs will be its new gateway to India or when the new flights will begin. However, Delta has a very good chance of success this time -- albeit not because of any sudden change in the level of competition from Middle Eastern airlines. And by offering nonstop flights to India, Delta will take away one of United's key competitive differentiators.

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Adam Levine-Weinberg owns shares of Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.