Analyst: Delta Must Fix Wheels Up Investment, and Fast

“Delta Air Lines must fix its unprofitable Wheels Up investment—quickly,” according to business aviation analyst Brian Foley of Brian Foley Associates. He noted that the urgency is now greater since the airline reported a 29% year-over-year (YOY) profit decline in the second quarter while Wheels Up, which will report its second-quarter results next Thursday, continues to bleed red ink.

“Wheels Up, purchased by Delta and a consortium of investors a year ago, had a $97 million loss in the first quarter, about on par with its loss during the same period in 2023,” Foley said. “Wheels Up never made money even before Delta’s rescue, and since its founding has racked up a $1.86 billion accumulated deficit.”

Earlier this year, Delta installed one of its board members as CEO of Wheels Up, in addition to adding former Delta chairman of operations and “an assortment of other [Delta] v-p’s mostly with operations backgrounds” to the executive ranks to turn around the private aviation charter operator, he said. Still, Wheels Up YOY revenues in the first quarter fell 44%, active members and revenue legs both dipped 25%, and cash on hand was reduced by nearly a third to $180 million, which Foley believes that, at current burn rates, could run out in the second half.

“Recent tweaks to improve the financials have included reducing primary flight coverage areas and fleet size, closing maintenance facilities, and most recently furloughing 11% of its pilots,” Foley explained. He also said the King Airs that make up a majority of Wheels Up’s fleet were not “designed with high-frequency airline-type operations in mind. As such, scheduled maintenance events are frequent and time-consuming.”

Another market challenge has been lower demand for charter flights in the U.S. due to “inflation and uncertainty,” he added.

“While Delta’s perseverance has been admirable and there are likely more sources of outside capital [for Wheels Up] if needed, without near-term meaningful financial improvement other avenues inevitably must be explored,” Foley concluded.