Delta ups ante in battle for New York fliers with $1.4 billion terminal

by Mary Jane Credeur

Bloomberg

Delta Air Lines Inc. sharpened the jockeying for the highest-paying passengers in New York, the biggest U.S. aviation market, as it opened a $1.4 billion terminal at John F. Kennedy International Airport.

A venture with Virgin Atlantic Airways Ltd., in which Delta is taking a 49 percent stake, will include seven daily JFK flights to London’s Heathrow airport once the purchase is completed this year, President Ed Bastian said in an interview before today’s inauguration of the international facility.

“JFK is going to be a big driver for us in getting international seats, a big driver in the Virgin transaction, a big driver for us in New York with banks and financial service providers,” he said Wednesday at Bloomberg’s New York headquarters. “Today since we’re a relatively small player in that market, we don’t have a frequency pattern that appeals to the business traveler.”

Wooing corporate fliers in the nation’s financial capital is part of Delta’s strategy to focus on travelers who buy the priciest tickets. No carrier dominates service across New York’s three major airports, where government controls curb growth and force airlines to fight each other for passengers.

JFK is a critical piece in Delta’s plan, and its aging facilities there had become a liability in an industry where carriers set themselves apart through creature comforts such as upscale food at terminal restaurants and quiet lounges.

Competitor upgrades

JetBlue Airways Corp.’s Terminal 5 at JFK opened in 2008 and cost $743 million, and American Airlines parent AMR Corp. spent $1.3 billion on a Kennedy terminal in 2007. Continental Airlines, a United Continental predecessor, invested $1.4 billion in 2001 at New Jersey’s Newark Liberty airport and the combined company announced that it’s offering lie-flat seats on all long-haul, international flights from New York.

Delta hired Harry Olsen, who built the $1.5 billion baseball stadium for the New York Yankees, to oversee the project, which adds 16 international gates, automated baggage screening, more customs inspection booths, and an airport lounge as big as five basketball courts.

In a second phase of construction, another 11 gates will be added to connect passengers to international flights, at a cost of $175 million. The first phase cost about $1.2 billion.

Delta Chief Executive Officer Richard Anderson promised the airline would undertake another Kennedy expansion when demand warrants.

Third phase

“We want to keep investing and someday build a third phase,” Anderson said during the opening ceremony.

Delta has doubled its workforce in New York over the past six years, to 7,000 people, and will bring more growth in the coming years, said Mayor Michael Bloomberg, who is the majority owner of Bloomberg LP, the parent company of Bloomberg News.

The new terminal allows Delta to demolish the adjacent 1960s-era Terminal 3, a saucer-shaped building previously known as the Pan Am Worldport, which a Delta executive once said passengers equated to a “third-world country” because the facility was so dilapidated and worn. That space will be used for aircraft parking.

Delta climbed 2.4 percent to $18.93 at the close of trading in New York. The stock previously advanced 56 percent this year, outpacing a 16 percent gain by the Standard & Poor’s 500 Index.

Emissions rule faces delay

In the meantime, an airline industry agreement on a standard measure of aircraft greenhouse-gas emissions may be delayed at least a year for more research, according to the International Civil Aviation Organization.

ICAO’s Committee on Aviation Environmental Protection proposed using a plane’s maximum take-off weight, or MTOW, to help gauge aircraft emissions and efficiency, the Montreal-based regulatory body said in July. The ICAO council was expected to approve the system this year, it said at the time.

“Standards, not to mention the broad consensus which effective ones require, take time to develop,” Anthony Philbin, a spokesman for ICAO in Montreal, said yesterday by e-mail. “The present timetable looks to it being more fully resolved by end-2014 or possibly sometime in 2015.”

The United Nations-overseen body is seeking to reduce emissions from aviation. The European Union broadened its carbon market to cover airlines in January 2012. Europe can replace its aviation targets with a global measure as long as it’s as stringent as the EU’s, Connie Hedegaard, the bloc’s climate chief, said in February 2012.

Critics of ICAO’s metric include Dimitri Simos, founder of aeronautics software company Lissys Ltd. in Woodhouse Eaves, England, who argues it should include an aircraft’s empty weight rather than the more theoretical MTOW.

“It was flawed at its heart” because it’s an incomplete picture of aircraft emissions, said Simos, whose clients have included Boeing Co. and Airbus SAS.